2000 (11) TMI 83 - HC - Income Tax

Summary

Issues Involved:
1. Validity of notices u/s 142 and 143(2) of the Income-tax Act, 1961.
2. Jurisdiction of the Assessing Officer (AO) to proceed with regular assessment during the block assessment period.
3. Interpretation of "undisclosed income" and its assessment under Chapter XIV-B.
4. Clarification and validity of the Explanation inserted in section 158BA.

Summary:

1. Validity of Notices u/s 142 and 143(2):
The Revenue appellant contended that the learned single judge wrongly held the notices u/s 142 and 143(2) bad in law and set aside the assessment for the assessment year 1995-96. The learned single judge directed that the regular assessment should be completed within six months of finalizing the block assessment based on the returns filed by the assessee.

2. Jurisdiction of the AO to Proceed with Regular Assessment:
The learned single judge observed that once the total incomes u/s 158BB are computed, the AO has no further scope to make any computation for the concerned assessment year for regular assessment. The AO should only correct arithmetical or clerical mistakes as allowed u/s 143(1). The AO had no jurisdiction to arrive at different computations for the same assessment year under sections 158BB and 143(3).

3. Interpretation of "Undisclosed Income":
The AO can proceed with regular assessment for any period within the block period based on the returns filed. The "undisclosed income" assessable under Chapter XIV-B is based on material seized during the search, and the income declared in regular returns cannot be assessed under Chapter XIV-B. The Gujarat High Court and subsequent decisions clarified that the assessment under Chapter XIV-B is in addition to regular assessment.

4. Clarification and Validity of Explanation in Section 158BA:
The Explanation inserted by the Finance (No. 2) Act, 1998, clarified that the assessment under Chapter XIV-B is in addition to regular assessment. The Kerala High Court in Malayil Bankers' case overruled its earlier decision, aligning with the view that regular assessment can proceed alongside block assessment. The Explanation ensures that the undisclosed income for the block period does not include income assessed in regular assessment.

Conclusion:
The court set aside the judgment of the learned single judge, holding that there can be a regular assessment u/s 143(3) for the year for which returns were filed u/s 139 or 147 but not assessed till the date of search. The assessment order for the assessment year 1995-96 stands, and the appeal pending before the Commissioner of Income-tax is restored. The notices issued u/s 142 and 143(2) were deemed valid. The appeal was allowed with no order as to costs.