2012 (6) TMI 382 - HC - Income Tax

High Court Upholds Block Assessment Validity, Emphasizes Timely Completion

The High Court allowed the appeal, setting aside the Tribunal's orders canceling a block assessment under Section 158BD due to lack of recorded reasons by ... Cancelling a block assessment - notice for assessment under Section 158BD – as issuing notice for assessment did not record reasons – Held that:- Since the business premises and the residence of Sri.Abdul Gafoor and his wife Mrs.Souda Gafoor who is the managing partner of the respondent-assessee were one and the same, the AO who has jurisdiction to assess the searched assessees was the same officer who has jurisdiction to assess the respondent-firm as well - no scope for transfer of file from one AO having jurisdiction over the searched assessee to another AO for assessment u/s 158BD as both the searched assessee and the assessee in respect of whom details of suppressed income were received, were assessable by the same Assessing Officer - when the same Assessing Officer has jurisdiction to assess the searched assessee under Section 158BC and the other assessee under Section 158BD whose undisclosed income is also found in the course of such search, there is no necessity for the AO to record satisfaction as required under Section 158BD because there is no transfer of file from one officer to another - setting aside the order of the Tribunal and uphold the assessment under Section 158BD - in favour of revenue. Assessment is also barred by limitation – Held that:- As it is prudent that there is no time limit prescribed under the Act for issuance of notice under Section 158BD and the AO has to first complete the assessment that gets time barred first and then proceed to make assessment under Section 158BD later – as assessment was initiated under Section 158BD within two months from completion of assessment under Section 158BC against searched assessees which was made within time – thus the assessment under Section 158BD was initiated within a reasonable time and the same was completed within the statutory period of 2 years as contemplated under Section 158BE(2)(b) - set aside the orders of the Tribunal and restore the appeals back to the files of the Tribunal - in favour of revenue. Issues:1. Justification of cancelling block assessment under Section 158BD due to lack of recorded reasons by Assessing Officer.2. Assessment validity under Section 158BD based on search warrants and jurisdiction over searched and non-searched assessees.3. Limitation period for completing assessments under Sections 158BC and 158BD.Issue 1: Justification of Cancelling Block Assessment:The High Court considered the appeal against the Tribunal's order canceling a block assessment under Section 158BD due to the Assessing Officer's failure to record reasons for assessment notice issuance. The Court referred to a previous case where it was held that recording reasons under Section 158BD is only necessary for transferring files between officers with different jurisdictions. Despite initially considering reversing the Tribunal's decision, the Court proceeded to analyze the case's specifics for completeness.Issue 2: Assessment Validity Based on Search Warrants and Jurisdiction:The Court examined the case where search warrants were issued for certain concerns controlled by an individual, leading to the discovery of undisclosed income related to a partnership firm. Although no warrant was issued for the firm, assessments were made under Section 158BD due to evidence found in the individual's premises. The Court determined that as the same Assessing Officer had jurisdiction over both the searched individual and the firm, recording satisfaction under Section 158BD was unnecessary, ultimately upholding the assessment.Issue 3: Limitation Period for Assessments under Sections 158BC and 158BD:Regarding the limitation period, the Court addressed the contention that assessments under Section 158BD should proceed simultaneously with those under Section 158BC. It clarified that the completion timeframes for assessments under both sections are distinct. The Court found the assessment on the respondent within the statutory two-year period from the notice issuance under Section 158BD, rejecting claims of delay in initiating proceedings. Emphasizing the importance of completing assessments on searched assessees first, the Court held that the assessment under Section 158BD was initiated and completed within a reasonable time frame, in compliance with the statutory requirements.In conclusion, the High Court allowed the appeal, setting aside the Tribunal's orders and directing the Tribunal to reconsider the appeals in conjunction with related cases.