2007 (2) TMI 148 - SC - Income Tax

Prerequisites for block assessment under Sections 158BC/158BD must be strictly met; procedural lapses invalidate assessment

MANISH MAHESHWARI and INDORE CONSTRUCTION P. LTD. Versus COMMISSIONER OF INCOME-TAX

SC held that the prerequisites for invoking a block assessment under Sections 158BC/158BD were not satisfied: no search under s.132 nor requisition under ... Scope and interpretation of Section 158BC - block assessment following a search under Section 132 Or requisition under Section 132A - Search of the premises of a director of a company and his wife - whether the notice dated February 06, 1996 satisfies the requirements of Section 158BD of the Act - HELD THAT:- The condition precedent for invoking a block assessment is that a search has been conducted under Section 132, or documents or assets have been requisitioned under Section 132A. The said provision would apply in the case of any person in respect of whom search has been carried out under Section 132A or documents or assets have been requisitioned under Section 132A. Section 158BD, however, provides for taking recourse to a block assessment in terms of Section 158BC in respect of any other person, the conditions precedents wherefor are : (i) Satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 of the Act; (ii) The books of account or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction over such other person; and (iii) The Assessing Officer has proceeded under section 158BC against such other person. The conditions precedent for invoking the provisions of Section 158BD, thus, are required to be satisfied before the provisions of the said chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under Section 132A of the Act. No proceeding under Section 158BC had been initiated. There is, thus, a patent non-application of mind. A prescribed form had been utilized. Even the status of the assessee had not been specified. It had only been mentioned that the search was conducted in the month of November 1995. No other information had been furnished. The provisions contained in Chapter XIVB are drastic in nature. It has draconian consequences. Such a proceeding can be initiated, it would bear repetition to state, only if a raid is conducted. When the provisions are attracted, legal presumptions are raised against the assessee. The burden shifts on the assessee. Audited accounts for a period of ten years may have to be reopened. As the Assessing Officer has not recorded its satisfaction, which is mandatory; nor has it transferred the case to the Assessing Officer having jurisdiction over the matter, we are of the opinion that the impugned judgments of the High Court cannot be sustained, which are set aside accordingly. The appeals are allowed. However, in the facts and circumstances of the case, there shall be no order as to costs. Issues Involved:1. Interpretation of Section 158BC of the Income Tax Act, 1961.2. Jurisdiction of the Assessing Officer in conducting block assessments.3. Compliance with the procedural requirements under Sections 158BC and 158BD.4. Satisfaction and transfer of documents by the Assessing Officer.5. Legal principles of strict interpretation in taxing statutes.Issue-Wise Detailed Analysis:1. Interpretation of Section 158BC of the Income Tax Act, 1961:The Supreme Court examined the scope and interpretation of Section 158BC, which deals with the procedure for block assessment following a search under Section 132 or requisition under Section 132A. The Court emphasized that this section applies when a search has been conducted or documents/assets have been requisitioned, necessitating a notice to the person to furnish a return of undisclosed income for the block period.2. Jurisdiction of the Assessing Officer in Conducting Block Assessments:The Tribunal had previously opined that the Assessing Officer lacked jurisdiction to proceed with block assessments against the assessee since no search was conducted under Section 132. The Tribunal noted that the Assessing Officer engaged in a 'roving enquiry' beyond the scope of Section 158BD by referring to the Valuation Cell for completed assessments without direct or indirect evidence of undisclosed income.3. Compliance with Procedural Requirements under Sections 158BC and 158BD:The Supreme Court highlighted the procedural requirements under Sections 158BC and 158BD. Section 158BD mandates that the Assessing Officer must record satisfaction that undisclosed income belongs to a person other than the one searched and must hand over seized documents/assets to the Assessing Officer with jurisdiction over that person. The Court found that the notice issued on February 06, 1996, did not meet these requirements, lacking recorded satisfaction and proper transfer of documents.4. Satisfaction and Transfer of Documents by the Assessing Officer:The Court noted that the Assessing Officer did not record satisfaction or transfer documents as required under Section 158BD. The notice issued was a prescribed form without specific details, indicating non-application of mind. The Court stressed that the drastic and draconian nature of Chapter XIVB requires strict adherence to procedural safeguards, including proper satisfaction and transfer of documents.5. Legal Principles of Strict Interpretation in Taxing Statutes:The Court reiterated the principle of strict interpretation in taxing statutes, citing precedents that taxing provisions should not create an additional fiscal burden unless explicitly stated. The Court referenced cases like Sneh Enterprises v. Commissioner of Customs and J. Srinivasa Rao v. Govt. of A.P., emphasizing that in cases of doubt, the interpretation should favor the taxpayer.Conclusion:The Supreme Court concluded that the procedural lapses, including the lack of recorded satisfaction and improper transfer of documents, rendered the block assessment proceedings invalid. The impugned judgments of the High Court were set aside, and the appeals were allowed, with no order as to costs.