1999 (2) TMI 50 - HC - Income Tax

Summary

Issues Involved:
1. Interaction between block assessment and regular assessment.
2. Validity of notices u/s 142(1) and 143(2).
3. Priority of block assessment over regular assessment.
4. Limitation for assessment.
5. Levy of penalty and interest under Chapter XIVB.

Summary of Judgment:

1. Interaction between Block Assessment and Regular Assessment:
The court examined the interaction between the special procedure for block assessment introduced by Chapter XIVB of the Income-tax Act, 1961, and the regular procedure for assessment. Block assessment, triggered by search or seizure, computes the assessee's total income for the past ten years under Chapter XIVB, irrespective of whether a reopening notice u/s 148 has been served. The Assessing Officer must consider materials obtained from search and seizure and other materials in his possession. The income already regularly assessed or returned is deducted to arrive at the undisclosed income, taxed at 60% u/s 113.

2. Validity of Notices u/s 142(1) and 143(2):
The writ application challenged the power of the Assessing Officer to issue notices u/s 142(1) and 143(2) for regular assessment of a financial year included in the block period. The court found that these notices were invalid as they should have been used for block assessment under section 158BC(b).

3. Priority of Block Assessment over Regular Assessment:
The court emphasized that block assessment must precede regular assessment. The Assessing Officer must use all powers during block assessment to ensure complete computation of total income. Regular assessment should only address the residual duties after block assessment, based on the returns filed before the search and seizure.

4. Limitation for Assessment:
The court addressed the limitation issue, noting that the block assessment period extends beyond the regular assessment period. The Assessing Officer should expedite block assessment to allow time for subsequent regular assessment based on filed returns.

5. Levy of Penalty and Interest:
The court discussed the implications of Chapter XIVB on penalties and interest. Under regular procedures, penalties could be levied for additional tax, but block assessment limits the assessee's liability to 60% of undisclosed income. Section 158BFA introduces penalties for defaults in block returns, but section 271 penalties are largely inapplicable post-block assessment.

Directions:
The regular assessment for the assessment year 1995-96 was set aside. The Assessing Officer must complete the block assessment first and then proceed with the regular assessment within six months, based on the returns filed, making only arithmetical or undisputed adjustments. The writ application largely succeeded, with no order as to costs.