Block assessment does not bar regular assessment of disclosed income; clarificatory amendment upheld as valid and retrospective.

Chapter XIV-B block assessment of undisclosed income is additional to, and does not replace, regular assessment of disclosed income for a year within the block period. The Court held that income already disclosed in a return under section 139 or 147 does not merge into block assessment, so regular assessment under section 143(3) may proceed concurrently and notices under sections 142(1) and 143(2) remain valid. It also held that the Explanation inserted in section 158BA, stating that block assessment is in addition to regular assessment, was clarificatory, retrospective in effect, and not ultra vires. The regular assessment proceedings were restored.

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Issues: (i) Whether, after a search and block assessment under Chapter XIV-B, the Assessing Officer could still proceed with regular assessment for a year falling within the block period on the basis of a return already filed under section 139 or section 147; (ii) whether the Explanation inserted in section 158BA, stating that block assessment is in addition to regular assessment, was valid and clarificatory.

Issue (i): Whether, after a search and block assessment under Chapter XIV-B, the Assessing Officer could still proceed with regular assessment for a year falling within the block period on the basis of a return already filed under section 139 or section 147.

Analysis: Chapter XIV-B was held to deal with undisclosed income for the block period, while regular assessment continued to govern disclosed income returned by the assessee. The Court preferred the view that income already disclosed in a return pending on the date of search does not merge into the block assessment so as to exclude regular assessment. It considered the scheme of sections 158B, 158BB and 143(3), and held that excluding regular assessment would create the risk of escapement of income and would not accord with the legislative scheme. It also accepted that income assessed in the regular assessment cannot be taxed again as undisclosed income in block assessment.

Conclusion: Regular assessment under section 143(3) could proceed simultaneously with block assessment under Chapter XIV-B for the relevant previous year, and the notices under sections 142(1) and 143(2) were valid.

Issue (ii): Whether the Explanation inserted in section 158BA, stating that block assessment is in addition to regular assessment, was valid and clarificatory.

Analysis: The Court held that the Explanation was enacted to resolve the conflict among High Courts and to clarify that block assessment does not subsume regular assessment. It treated the amendment as clarificatory and retrospective in operation, and rejected the contention that it was ultra vires. The Court held that the statutory clarification aligned the block assessment scheme with the separate assessment of disclosed income.

Conclusion: The Explanation inserted in section 158BA was valid and clarificatory, and not ultra vires.

Final Conclusion: The impugned judgment was set aside, the regular assessment proceedings for assessment year 1995-96 were restored, and the appeal was allowed.

Ratio Decidendi: Chapter XIV-B assessment of undisclosed income is additional to, and does not replace, regular assessment of disclosed income for a previous year included in the block period; a clarificatory statutory amendment may validly confirm that both proceedings can operate concurrently.

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