Retrospective surcharge on undisclosed income and section 154 rectification limits in block assessment proceedings

Surcharge on undisclosed income computed in a block assessment was treated as leviable where the search had been initiated before 1 June 2002, because section 113 was applied retrospectively as clarified by later judicial authority. The assessee's attempt to delete surcharge through rectification under section 154 was not maintainable, since the surcharge had already formed part of the original section 158BC assessment and was not part of the Settlement Commission proceedings. The rectification request was also time-barred under section 154(7) and did not involve an apparent mistake on the record.

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Issues: Whether surcharge was leviable on undisclosed income computed in a block assessment where the search was initiated before 1 June 2002, and whether the assessee could invoke rectification under section 154 of the Income-tax Act, 1961 to delete the surcharge from the order giving effect to the Settlement Commission's decision.

Analysis: The undisclosed income had been computed in block assessment proceedings under Chapter XIV-B following a search under section 132 of the Income-tax Act, 1961. The assessee's application under section 154 sought deletion of surcharge from the demand, but the surcharge had already been included in the original assessment under section 158BC and was not the subject of the settlement proceedings under sections 245C(1) and 245D(4). The rectification application was therefore beyond limitation under section 154(7), counted from the original assessment order. On the substantive question, the provision in section 113, as clarified by later judicial authority, applied retrospectively to searches initiated before 1 June 2002, and the surcharge formed part of the tax on undisclosed income. A rectification under section 154 was unavailable because the issue was not a patent error apparent from the record.

Conclusion: The surcharge was leviable, and the deletion of surcharge under section 154 was not justified; the Revenue's appeal succeeded.

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