2007 (2) TMI 148 - SC - Income Tax

Search of the premises of a director of a company and his wife - Block assessment in the hand of company is not permissible as search was not conducted against the company - In case of doubt and dispute, it is well settled, construction has to be made in the favour of taxpayer

Summary

Issues Involved:
1. Interpretation of Section 158BC of the Income Tax Act, 1961.
2. Jurisdiction of the Assessing Officer in conducting block assessments.
3. Compliance with the procedural requirements under Sections 158BC and 158BD.
4. Satisfaction and transfer of documents by the Assessing Officer.
5. Legal principles of strict interpretation in taxing statutes.

Issue-Wise Detailed Analysis:

1. Interpretation of Section 158BC of the Income Tax Act, 1961:
The Supreme Court examined the scope and interpretation of Section 158BC, which deals with the procedure for block assessment following a search under Section 132 or requisition under Section 132A. The Court emphasized that this section applies when a search has been conducted or documents/assets have been requisitioned, necessitating a notice to the person to furnish a return of undisclosed income for the block period.

2. Jurisdiction of the Assessing Officer in Conducting Block Assessments:
The Tribunal had previously opined that the Assessing Officer lacked jurisdiction to proceed with block assessments against the assessee since no search was conducted under Section 132. The Tribunal noted that the Assessing Officer engaged in a "roving enquiry" beyond the scope of Section 158BD by referring to the Valuation Cell for completed assessments without direct or indirect evidence of undisclosed income.

3. Compliance with Procedural Requirements under Sections 158BC and 158BD:
The Supreme Court highlighted the procedural requirements under Sections 158BC and 158BD. Section 158BD mandates that the Assessing Officer must record satisfaction that undisclosed income belongs to a person other than the one searched and must hand over seized documents/assets to the Assessing Officer with jurisdiction over that person. The Court found that the notice issued on February 06, 1996, did not meet these requirements, lacking recorded satisfaction and proper transfer of documents.

4. Satisfaction and Transfer of Documents by the Assessing Officer:
The Court noted that the Assessing Officer did not record satisfaction or transfer documents as required under Section 158BD. The notice issued was a prescribed form without specific details, indicating non-application of mind. The Court stressed that the drastic and draconian nature of Chapter XIVB requires strict adherence to procedural safeguards, including proper satisfaction and transfer of documents.

5. Legal Principles of Strict Interpretation in Taxing Statutes:
The Court reiterated the principle of strict interpretation in taxing statutes, citing precedents that taxing provisions should not create an additional fiscal burden unless explicitly stated. The Court referenced cases like Sneh Enterprises v. Commissioner of Customs and J. Srinivasa Rao v. Govt. of A.P., emphasizing that in cases of doubt, the interpretation should favor the taxpayer.

Conclusion:
The Supreme Court concluded that the procedural lapses, including the lack of recorded satisfaction and improper transfer of documents, rendered the block assessment proceedings invalid. The impugned judgments of the High Court were set aside, and the appeals were allowed, with no order as to costs.