2013 (3) TMI 177 - HC - Income Tax

Block assessment - notice u/s 158BC - Tribunal cancelled the assessments as invalid and void-ab-initio? - Held that - The Tribunal has rightly pointed out that jurisdiction to assess the undisclosed income for the block period under Chapter XIV-B vests in the AO by virtue of the provisions of Section 158BA in a case where a search under Section 132 is initiated after 30.6.1995. Again, in term of Section 158 BC, a notice under that Section can be issued where any search has been conducted under Section 132. However, assessment is to be carried out in respect of undisclosed income of other person i.e. a person in whose case, there was no search made under Section 132 of the Act, the provisions of Section 158 BD are to be invoked. As in the present case as emerges from the record there is no authorization of search or search warrants under Sections 132 (i) in respect of these assessees. No doubt, while searching the premises of their father Lal Singh, some documents and other material which were not belonging to the assessees were seized and on that basis, there could be block assessment. However, in such a situation when there was no authorization in respect of these assessees, it is the provisions of Section 158 BD which would be attracted and not the provisions of 158 BC. Such an assessment without authorization is void ab-initio. See Promain Ltd. vs. DCIT 2005 (6) TMI 224 - ITAT DELHI & Ajit Jain Vs. Union of India 2000 (1) TMI 41 - DELHI HIGH COURT upheld in 2003 (1) TMI 97 - SUPREME COURT Thus search under Section 132 is a pre- requisite for invoking the provisions of the said Chapter XIV-B - in favour of assessees.

Summary

Issues:
- Validity of assessment proceedings under Section 158 BC
- Jurisdiction of the Assessing Officer in block assessment cases

Issue 1: Validity of assessment proceedings under Section 158 BC

The judgment pertains to five appeals where the Tribunal had cancelled the assessments by holding that the assumption of jurisdiction by issuing notice under Section 158 BC was invalid and void ab-initio. The appeals arose from common orders passed by the Income Tax Appellate Tribunal, based on information received regarding disproportionate assets of certain individuals. The Additional Director of Income Tax issued warrants for searching the premises of the individuals, leading to the discovery of incriminating documents. Subsequently, notices were issued under Section 158 BC to the individuals for undisclosed income, and assessments were carried out. The appellants contended that the assessment proceedings were without jurisdiction due to the lack of authorization for search warrants against them. The Tribunal agreed with this submission, setting aside the order of the Additional Director of Income Tax as invalid and void ab-initio. The Tribunal highlighted the absence of search warrants under Section 132 (1) of the Act for the assessees, emphasizing that the provisions of Section 158 BD should have been applied instead of Section 158 BC for block assessment in such cases.

Issue 2: Jurisdiction of the Assessing Officer in block assessment cases

The judgment elaborates on the jurisdiction of the Assessing Officer in assessing undisclosed income for the block period under Chapter XIV-B. It distinguishes between Sections 158 BA, 158 BC, and 158 BD of the Income Tax Act, 1961. Section 158BD authorizes the Department to assess a person other than the searched person based on materials recovered during search, without requiring an independent notice. In cases where there is no search warrant against the individual, the provisions of Section 158 BD should be invoked for assessment. However, in the present case, the assessees were issued notices under Section 158 BC, leading to assessments under that provision. The Tribunal deemed such assessments without authorization as void ab-initio, citing relevant case law and judgments. The judgment references the Ajit Jain case, where the High Court invalidated a block assessment due to an illegal search, emphasizing the necessity of a valid search for invoking Chapter XIV-B provisions. The Supreme Court and other High Court judgments further supported this stance, leading to the dismissal of the appeals in favor of the assessees.

In conclusion, the High Court upheld the Tribunal's decision, emphasizing the importance of proper jurisdiction and adherence to statutory provisions in assessment proceedings under the Income Tax Act. The judgment provides a detailed analysis of the legal principles governing block assessments and the implications of invalid search warrants on the validity of assessments under different sections of the Act.