TaxTMI 
TaxTMI 
2008 (8) TMI 86
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..... 5,05,087/- came to be filed. 3. On 24.11.1995 search proceedings under section 132 of the Income Tax Act, 1961 (the Act) were carried out at the residential premises of three erstwhile partners of the petitioner Firm. Certain loose papers were found from the residence of one of the partners Mr. T.V. Sujan. The said documents were seized and statement of Mr. Sujan was recorded. An order under section 158BD of the Act came to be made on 31.03.1997 for the block period ending on 24.11.1995 in the status of AOP. The assessment was made pursuant to return of income for the block period filed on 03.03.1997 showing total undisclosed income at Rs. 30 lacs. The assessment was made after various details and explanation were called for vide Notice dated 05.03.1997 to which a detailed reply was filed on 12.03.1997. The assessment was framed on a total income of Rs. 40,50,900/- after taking approval of Commissioner of Income Tax, Rajkot. 4. On 16.04.1999 Notice under section 148 of the Act came to be issued seeking to reassess the income for the block period ending on 24.11.1995 by stating that the respondent had reason to believe that the income for the block period ending on 24.11.199....
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....specify the assessment year from the end of which the time limit could be computed. 7.2 Similarly provisions of sections 151 & 153 of the Act were also pointed out to reiterate submission that in a case where the sanction was required as provided by section 151 of the Act, again same was from the expiry of four years from the relevant assessment year and the conditions could not be fulfilled. Similarly section 153 of the Act also provided different period of limitation as against the provisions of section 158BE of the Act which provides for time limit for completion of block assessment. 7.3 Another contention was that the assessment framed under Chapter XIV-B of the Act had to be framed after the final order was approved by the Commissioner of Income Tax and a subordinate authority cannot seek to re-open such assessment, as in the present case where the impugned Notice has been issued by the Joint Commissioner of Income-tax. 7.4 The period of limitation prescribed under section 158BE of the Act was less than the period of limitation prescribed under section 153 of the Act and therefore also the scheme did not permit such an exercise. 8. On behalf of the respondent autho....
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.... the cut off date, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of Chapter XIV-B. 12. Relying on section 158BA(1) the assessee claims that Chapter XIV-B is a special procedure for assessment of cases; that it constitutes a self-contained mechanism and, hence, it falls outside the scope of section 4(1) of the 1961 Act, particularly when section 4(1) imposes a charge on the 'total income' and not on the undisclosed income and, particularly when section 158BA(2) is an independent charging section in contrast to section 4(1) of the 1961 Act, which imposes a charge on the 'total income' of the previous year. According to the assessee, the charge under section 158BA (2) is on the 'block period' and not on the total income of the 'previous year'. Therefore, according to the assessee, Chapter XIV-B is a self-contained mechanism. 13. As stated above, these arguments advanced on behalf of the assessee have no merit. Section 158B defines 'block period' to mean the period comprising the previous years relevant to 10/6 assessment years preceding the previous year in which the sear....
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....H which deals with application of other provisions of the 1961 Act to the block assessment procedure in Chapter XIV-B. Section 158BH makes it clear that save as otherwise provided in Chapter XIV-B, all other provisions of the 1961 Act shall equally apply to block assessment. Therefore, one has to read the non obstante clause in section 158BA in juxtaposition with section 158BH. Keeping in mind the provisions of section 158BB and keeping in mind the Chapter XIV-B, we are of the view that Chapter IV is not ruled out from block assessment procedure and, therefore, one has to read section 158BB with section 4 of the 1961 Act. 14. There is one more fact which needs to be noted. A bare reading of the provisions of section 158BA and section 158BB indicates that the searches conducted by the Department are an important means of unearthing black money. However, undisclosed income has to be related to the different years in which the income was earned. The essence of the block assessment procedure, therefore, is a separate single assessment of undisclosed income, detected as a result of a search. This separate assessment is in addition to normal or regular assessment covering the sa....
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....s of 'total income' and 'previous year' are given a go by in Chapter XIV-B. The above analysis of section 158BB indicates that both the concepts are retained in Chapter XIV-B. The only difference is that section 4 of the 1961 Act charges the total income of a person of one single previous year (unit of assessment) whereas section 158BA(2) levies a charge on the income of a person for the block period of previous years relevant to 10/6 assessment years. In our view, the words 'block period', as defined in section 158B (a), comprises previous years relevant to 10/6 assessment years as one unit of time for the purposes of assessment. As stated above, the object behind the enactment of Chapter XIV-B is to assess and compute 'undisclosed incomes' relatable to different accounting years in which the income is earned. Therefore, if the block period comprising of previous years relevant to 10/6 assessment years is treated by Parliament as one unit of time for assessment purposes, one has to correlate 'undisclosed income' to each of the years in which income was earned by the assessee. It is true that under Chapter XIV-B, computation of regular income....
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....er this scheme, the undisclosed income detected as a result of any search initiated, or requisition made, after 30-6-1995, shall be assessed separately as income of a block of years. Where the previous year has not ended or the due date for filing a return of income for any previous year has not expired, the income recorded on or before the date of the search or requisition in the books of account or other documents, maintained in the normal course, relating to such previous years shall not be included in the block." 11. Therefore, this is a pointer to the fact that undisclosed income, in other words, the income which has not been disclosed and which has not been taxed, has to be assessed by adopting a special procedure. The special procedure has been evolved to save valuable time which is otherwise lost in the process of co-relating the undisclosed income to different assessment years by obviating the legal battles involving issues of procedure and interpretation of law. The legislature found it necessary to arrive at a cost effective, efficient and meaningful procedure to avoid litigations which continue for many years to decide which income, or part of income, is assessable i....
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....sessed as the income of the block period consisting of a period of 10 previous years, preceding the previous year in which the search was conducted or the books of accounts, assets, etc. were requisitioned. The period of the current year upto the date of the search will also form part of the block period. (b) Undisclosed income. - The undisclosed income has been defined in clause (b) of section 158B. The term 'undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act. (ii) The undisclosed income of the block period, therefore, shall be aggregate of the total income of the previous years falling within the block period, computed on the basis of evidence found as a result of search and such other enquiries as the assessing officer may make and such other materials or information as a....
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....owever, be required where initial search was conducted prior to 1st July, 1995 irrespective of the last search or consequential searches which may have continued and concluded on or after that date i.e. 1st July, 1995. (ii) The order of assessment for the block period shall be passed within one year from the end of the month in which last of the search warrants is executed. Though the term execution has not been defined in Chapter XIVB, it will take its usual meaning which means the date on which the search has been completed. Where consequential searches or requisitions have been made, the period of limitation of one year shall start from the end of the month in which the last of such consequential operations were concluded. (iii) The assessment order for the block period shall be passed by an assessing officer not below the rank of Assistant Commissioner of Income-tax with the prior approval of the Commissioner of Income-tax." XXX XXX XXX XXX XXX (e) Procedure for making block assessment.- (i) The assessing officer shall serve a Notice on such person requiring him to furnish within such time, not being less than 15 days, as may be specified in ....
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....taken as the previous years relevant to the 10 assessment years immediately preceding the year relevant to the previous year in which the search has taken place irrespective of the fact whether the assessments for all these assessments years have already been made or not. For example, when a search has taken place on 11-7-1995, the block of 10 previous years shall be block relevant to assessment years 1986-87 to 1995-96 plus the period upto date of search i.e. from 1-4-1995 to 11-7-1995. (iv) Where the assessee offers no explanation about the nature of source of acquisition of certain assets or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of such assets may be deemed to be income of the relevant previous year as mentioned in section 158BB(2). The onus of proving to the satisfaction of the assessing officer that any undisclosed assets including the income from undisclosed property has already been disclosed in any return of income filed by the assessee before the initiation of the search shall be on the assessee." 12.1 Subsequently by the Finance (No. 2) Act, 1996 certain amendments in Chapter XIV-B of the Act ca....
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....to include ten previous years preceding the previous year in which the search was conducted under section 132. Before the adoption of the uniform previous year, assessees were allowed to have any accounting period as the previous year under section 3 of the Income-tax Act. Consequently, the block period would be different in different cases depending upon the previous years adopted by the assessees before 1-4-1989. (ii) In view of this, the Act amends the definition of block period as consisting of previous years relevant to ten assessment years. This will make the block period uniform in case of all assessees. (iii) The amendment will take effect retrospectively from 1st July, 1995." 12.2 Again by the Finance (No. 2) Act, 1998 certain further amendments were made in Chapter XIV-B of the Act and the same have been explained by CBDT vide Circular No. 772 dated 23.12.1998. The relevant extract reads as under [1999] 235 ITR (st.) 35,74): "53. Clarificatory amendments in procedure for block assessment. - 53.1 To set at rest the controversy as to whether block assessment subsumes the regular assessments or is independent of the latter, the Act has ....
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....., from ten years to six years, the Act has amended the definition of 'block period' to mean the period comprising the previous years relevant to six assessment years preceding the previous year in which the search was conducted or any requisition was made and including the period up to the date of commencement of such search, or as the case may be, the date of such requisition, in the year of search or requisition. 69.3 The amendment takes effect from 1st June, 2001, and will apply in relation to searches initiated or requisitions made on or after that date". 12.4 The last amendment came to be made by the Finance Act, 2002 which has been explained in Circular No. 8/2002 dated 27.08.2002. The relevant extract of the said Circular reads as under ([2002] 258 ITR (st.)13, 57): "61. Rationalisation of the provisions of Chapter XIV-B relating to block assessments in cases of search and requisition. - 61.1 The existing provisions contained in Chapter XIV-B of the Income-tax Act provide for a single assessment of undisclosed income of a block period of six years, in case of search under section 132 or requisition under section 132A and lay down the ma....
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.... of search ending on the date of search. This saves the Assessing Officer from being required to obtain prior approval of the higher authorities for initiation of assessment/reassessment proceedings for past years falling within the block period. (b) Under the first Proviso below clause (a) of section 158BC of the Act it is provided that no Notice under section 148 of the Act is required to be issued for the purpose of proceeding under Chapter XIV-B of the Act. (c) The order of assessment would be a consolidated order for the entire block period obviating need for multiple assessments for each of the assessment years included in the block period. (d) The definition of block period indicates that what is material is, to constitute the block period, the specified 10/6 years i.e. preceding the previous year in which search was conducted and includes remainder period up to the date of search. In other words the term block period does not have any nexus with any particular assessment year. (e) The assessment for the block period has to be framed within one year/two years from the end of the month in which the last of the authorisations for search unde....
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.... even before issuing such Notice under section 148 of the Act, the Assessing Officer is mandated under sub-section (2) of section 148 of the Act to record reasons. The return of income which an Assessing Officer may call for from an assessee is in relation to income which has escaped assessment, for which an assessee is assessable under the Act during the previous year corresponding to the relevant assessment year. (c) Section 149(1) of the Act prescribes time limit for issuance of Notice under section 148 of the Act, again for the relevant assessment year; in either of the clauses (a) or (b) the period that is prescribed is from the end of the relevant assessment year. Similarly under sub-section (3) if the reassessment is proposed in case of a person treated as an Agent of a non-resident, notice under section 148 of the Act cannot be issued after the expiry of prescribed period from the end of the relevant assessment year. (d) Similarly section 151 of the Act provides for sanction for issue of Notice and there also the concept of relevant assessment year and the limitation from the end of the relevant assessment year has been laid down. (e) Section 153 ....
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....e under Chapter XIV-B of the Act, but requires applicability of other provisions of the Act to an assessment already made under Chapter XIV-B of the Act. The said provision, by adopting the principle of incorporation, provides for applicability of other provisions of the Act to an assessment which is already made to ensure that the machinery provisions, like provisions for recovery etc., have not to be engrafted in Chapter XIV-B of the Act. 18. Under section 158B of the Act "Block period" and "Undisclosed income" have been defined. Section 158BA of the Act opens with non obstante clause and provides that in a case of search initiated after 30.06.1995 the Assessing Officer shall proceed to assess the undisclosed income in accordance with provisions of Chapter XIV-B of the Act, notwithstanding anything contained in any other provisions of the Act. Therefore, provisions of section 158BA(1) of the Act have to be read in conjunction with section 158BH of the Act. The legislature has provided a special procedure for assessment of search cases and assessment has to be framed in accordance with the provisions of Chapter XIV-B of the Act. On a harmonious reading of both sections 158BA an....
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.... First Proviso stipulates that no notice under section 148 is required to be issued for the purpose of proceeding under Chapter XIV-B of the Act. The Second Proviso stipulates that no person, who has already furnished a return under section 158BC(a) of the Act, shall be entitled to file a revised return as provided for in section 139(5) of the Act. Thus, these provisions are inherent indicators in the special procedure scheme to show that section 158BH of the Act has limited application. 21. Time limit for completion of block assessment has been provided in section 158BE of the Act. It indicates that the same has to be within one year/two years from the end of the month in which the last of the authorisations for search under section 132 of the Act was executed etc. For the present, it is not necessary to refer to the other provisions of the said section. However, Explanation 2 as appearing in section 158BE of the Act gives an indication as to what would be the date on which an authorisation shall be deemed to have been executed. Under clauses (a) and (b) of Explanation 2 different points of time have been specified. But in no case, can one envisage the applicability of period o....
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....isclosure by way of omission to disclose fully and truly all material facts for the purpose of assessment, or processing of material already available on record, if the same is within stipulated period of limitation. Therefore, to contend that undisclosed income has escaped assessment despite an assessment having been framed under Chapter XIV-B of the Act by adopting the special procedure prescribed by the said Chapter is to contend what is inherently not possible. It cannot be a case of non filing of return considering the provisions of section 158BC of the Act. It cannot be a case of non disclosure of material facts considering the fact that everything which was undisclosed has already been unearthed at the time of search and the definition of 'undisclosed income' itself indicates that not only what has been seized or recovered, but even income or property which has not been or would not have been disclosed for the purpose of the Act has been roped in. Furthermore, section 158BB of the Act also provides for not only for requisition of Books of Accounts or other documents, but on the basis of evidence found as a result of search and such other materials or information as a....
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....espect of search cases. In other words, not only the Assessing Officer cannot be an officer below the rank of an Assistant Commissioner etc., but the order of assessment framed is scrutinised by the highest officer in the hierarchy to ensure that : (1) no undisclosed income escapes assessment, and (2) there is no high pitched assessment, only for the sake of making an assessment. It would not be open to Revenue to contend that despite material being available on record the same escaped scrutiny at the hands of two officers, one of them being a superior officer in the hierarchy. 25. As already noted hereinbefore, the entire scheme for bringing to tax income which has escaped assessment under sections 147 to 153 of the Act specifically relates to a specific assessment year and different time limits are provided at different stages which are all inter-linked and commence from the end of the relevant assessment year. The definition of 'assessment year' as provided in section 2(g) of the Act means the period of 12 months commencing on the first day of April every year. This definition cannot by any stretch of imagination be made applicable to the term 'block period' w....
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....ead in the term 'block period' for the purpose of invoking and applying sections 147 to 153 of the Act cannot be countenanced. Neither does a plain reading of the provisions permit such an exercise, nor is there any lacuna in the provisions which is required to be filled up. 29. In Chapter XIV-B of the Act the only place where one finds the use of the term 'assessment year' is in the definition of the term 'block period'. This itself indicates that if the 'block period' was equivalent to 'assessment year' the definition of block period would not have provided that 'block period' means period comprising previous years relevant to 10/6 assessment years. To put it differently, reference to the number of assessment years is only a means, a measure to indicate and specify the period of previous years which would comprise block period. Revenue, therefore, cannot contend successfully that wherever the term 'assessment year' is used in the group of Sections from Section 147 to 153 of the Act the said term has to be replaced by the term 'block period'. Furthermore, the amendment which is retrospectively made in the definitio....
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....ly from Sections 147 to 153 of the Act pertaining to reassessment, and the special procedure for assessing the undisclosed income of the block period under Chapter XIV-B of the Act are not only separate and distinct from each other, but if an effort is made to incorporate the scheme under Chapter XIV of the Act for the purpose of assessment of the block period there is a conflict between the provisions which becomes apparent on a plain reading. In the circumstances, as per established rules of interpretation, unless and until a plain reading of the two streams of assessment procedure does not result in the procedures being independently workable, only then the question of resolving the conflict would arise. But to the contrary, in the present case, in light of provisions of section 158BH of the Act, once there is a conflict between the two streams of procedure, as laid down by the Apex Court, provisions of Chapter XIV-B of the Act shall prevail and have primacy. 33. Thus viewed from any angle, the stand of Revenue does not merit acceptance. Once assessment has been framed under section 158BA of the Act in relation to undisclosed income for the block period as a result of search ....