Tribunal remands block assessment order for redo, upholds approval under section 158BG

The Tribunal set aside the block assessment order dated 28-11-97 and remanded it to the Assessing Officer for re-doing in accordance with the law, emphasizing the requirement for a comprehensive block assessment under Chapter XIV-B. The Tribunal upheld the validity of the approval under section 158BG, finding no substantial prejudice to the assessee. The appeal was allowed for statistical purposes, with instructions for the Assessing Officer to promptly complete the block assessment.

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Issues Involved:
1. Validity of the block assessment order under Chapter XIV-B of the IT Act, 1961.
2. Validity of the previous approval for block assessment under section 158BG of the IT Act, 1961.

Issue-wise Detailed Analysis:

1. Validity of the Block Assessment Order Under Chapter XIV-B:

The appeal concerns the block assessment for the period from 1987-88 to 27-8-96, conducted under section 158BC of the IT Act, 1961. A search was conducted at the office premises of the assessee on 27-8-96, and various assets and documents were seized. The Assessing Officer issued a notice under section 158BC calling for the assessee's return of undisclosed income for the block period, which was filed on 17-4-97. The block assessment order was passed on 28-11-97, determining the total undisclosed income at Rs. 298 crores.

The primary contention of the assessee is that the block assessment order violated the provisions of Chapter XIV-B of the IT Act, particularly section 158BB. The assessee argued that the assessments for the years 1994-95 and 1995-96 were pending on the date of the search, and separate regular assessments were contemplated by the department for these years. The assessee contended that this procedure contradicted the special procedure under Chapter XIV-B, which mandates one comprehensive assessment for the block period. The assessee cited the provisions of section 158BB, emphasizing that the total income for all previous years within the block period should be computed in accordance with Chapter IV, based on evidence found during the search.

The revenue argued that Chapter XIV-B aims to assess only undisclosed income and does not replace the regular assessment procedures under Chapter XIV. They contended that separate regular assessments for the years 1994-95 and 1995-96 were necessary and that the block assessment should only cover undisclosed income.

The Tribunal considered the rival contentions and concluded that for computing undisclosed income of the block period, the total income of previous years within the block period must be determined under section 158BB(1). This determination should be part of the block assessment and not separate regular assessments. The Tribunal cited decisions from the Punjab & Haryana High Court and Kerala High Court, which supported this view. Consequently, the block assessment order dated 28-11-97 was set aside and restored to the Assessing Officer for re-doing in accordance with the law.

2. Validity of the Previous Approval for Block Assessment Under Section 158BG:

The second issue raised by the assessee was the validity of the approval granted by the Commissioner of Income-tax (CIT) under section 158BG. The assessee argued that the CIT violated the principle of natural justice by not affording an opportunity of hearing before granting approval. The assessee referred to a CBDT Circular dated 2-1-96, which suggested that the Commissioner should grant an opportunity of hearing before giving approval. The assessee also contended that the approval was given without proper application of mind, as the time between the hearing on 26-11-97 and the approval on 28-11-97 was too short for the CIT to review the voluminous block assessment order.

The revenue countered that the Act does not mandate supplying a copy of the draft order to the assessee or granting a hearing opportunity before approval. They argued that the approval process is meant for internal supervision and does not confer any rights to the assessee. The revenue also contended that any irregularity in the approval process does not invalidate the block assessment order, which remains assailable in appeal.

The Tribunal concluded that the purpose of the approval under section 158BG is to ensure proper supervision and monitoring of the block assessment. Even if there were some irregularities in the approval process, it would not have any fatal consequences, as the block assessment order remains subject to judicial scrutiny. The Tribunal found no evidence that the Commissioner did not apply his mind while granting approval and upheld the validity of the approval.

Conclusion:

The Tribunal set aside the block assessment order dated 28-11-97 and restored it to the Assessing Officer for re-doing in accordance with the law, emphasizing the need for a comprehensive block assessment under Chapter XIV-B. The Tribunal upheld the validity of the approval under section 158BG, finding no material prejudice to the assessee. The appeal was allowed for statistical purposes, with directions for the Assessing Officer to complete the block assessment expeditiously.

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