Notice under Section 143(2) is mandatory for block assessments and cannot be based on post-search material.

The Appellant, Sun Aero Ltd., claimed to be a wholly-owned subsidiary of Sun Air Hotels Ltd. In the Assessment Year (AY) 1995-96, the Appellant received development rights valued at ₹21 crores from its parent company for nil consideration and subsequently transferred them back for ₹21 crores

This amount was claimed as exempt from capital gains under Section 47(v) of the Income Tax Act, 1961, which the Assessing Officer (AO) accepted in a scrutiny assessment under Section 143(3)

Following a search operations on 21.11.2000, the AO formed an opinion that the Appellant was not a wholly-owned subsidiary based on post-search investigations and made an addition of ₹21 crores under Section 158BC for the block period

The CIT(A) deleted the addition, but the ITAT later restored it after a remand from the High Court, refusing to hear the Appellant's jurisdictional challenges because no cross-appeal was filed

1. Whether it was mandatory for the AO to issue a notice under Section 143(2) within the prescribed time before completing the block assessment under Section 158BC

2. Whether additions for undisclosed income in block assessment can be made absent incriminating material found during search, particularly when the issue was adjudicated in the original assessment

3. Whether the ITAT was correct in deleting the addition of ₹21 crores under Section 45 read with Section 47(v)

The court applied Section 158BC and Section 143(2) of the Income Tax Act regarding block assessment procedures.

Supreme Court ruling in ACIT v. Hotel Blue Moon (2010), which established that the requirement of notice under Section 143(2) is mandatory and jurisdictional, not a curable procedural irregularity

Principle from Hotel Blue Moon that block assessment is limited to "undisclosed income" unearthed specifically during a search and is not a substitute for regular assessment

PCIT v. Silver Line (2016), holding that jurisdictional legal issues can be raised for the first time before the Tribunal or High Court without a cross-appeal

The Court observed that the AO failed to provide evidence of issuing a mandatory notice under Section 143(2) during the Section 158BC proceedings

Applying Hotel Blue Moon, the Court held this omission to be a fatal jurisdictional defect

Regarding the search, the Court noted that the AO relied on material gathered during "post-search investigations" rather than material found during the search

Since the transaction had already been disclosed and scrutinized under the original Section 143(3) assessment, and no new incriminating material was found during the actual search operation, the AO exceeded the scope of Chapter XIV-B

The Court also rejected the Revenue's procedural objection, ruling that the Appellant could support the CIT(A)’s order on any legal ground even without a cross-appeal, as jurisdictional issues go to the root of the matter

It held that the failure to issue notice under Section 143(2) and the lack of incriminating material found during the search rendered the block assessment void

The Court quashed the assessment order dated 29.11.2002 and the ITAT order dated 20.09.2016

Having annulled the assessment on jurisdictional grounds, the Court declined to adjudicate the third issue on merits