2009 (11) TMI 22 - HC - Income Tax

Search - Legality and validity of notice u/s 148 change of opinion re assessment versus block assessment held that - the income which can be included in the block assessment is only such income which is directly evidenced by the material found during the search and does not include the income which has been discovered on the basis of post-search enquiries made during the block assessment proceeding. However, after the amendment made by the Finance Act, 2002, the assessment of undisclosed income can only be based on the evidence found in the search and the material or information gathered in post-search enquiry made on the basis of the evidence found in the search. - The issue whether the petitioner is entitled for deduction as a trader exporter or a manufacturer exporter having not been addressed in the block assessment order even, it is a clear case of initiation of reassessment proceedings. proceedings u/s 148 are legal

Summary

Issues Involved:
1. Jurisdiction of authority to issue notices under Section 148 of the Income Tax Act.
2. Permissibility of re-assessment proceedings under Section 147 in respect of 'block assessment'.

Detailed Analysis:

Issue 1: Jurisdiction of authority to issue notices under Section 148 of the Income Tax Act

The petitioner argued that all material facts were disclosed during the original assessment proceedings, and the reassessment notice was based on a mere 'change of opinion', which is without jurisdiction. The court examined whether the Assessing Officer had the "reason to believe" that income had escaped assessment, which is a jurisdictional requirement under Section 147 of the Income Tax Act. The court referred to several precedents, including *Ganga Saran & Sons P. Ltd. v. ITO* and *ITO v. Lakhmani Mewal Das*, to establish that the belief must be reasonable and based on relevant material.

The court found that the reasons recorded by the Deputy Commissioner of Income Tax indicated that the petitioner was a manufacturer of gold ornaments, contrary to the claim of being a trader. The court held that there was a rational connection between the material on record and the formation of belief that income had escaped assessment. The court also referred to Explanation 2 of Section 147, which deems certain cases as income escaping assessment, including cases where excessive relief or allowances have been granted.

The court concluded that the initiation of reassessment proceedings was not without jurisdiction, as there was sufficient material to form a belief that income had escaped assessment. The court dismissed the argument that the reassessment notice was based on a mere change of opinion.

Issue 2: Permissibility of re-assessment proceedings under Section 147 in respect of 'block assessment'

The petitioner contended that reassessment proceedings under Sections 147 and 148 are not permissible for periods covered under 'block assessment'. The court examined the relevant provisions and precedents, including the Explanation to sub-section (2) of Section 158BA, which clarifies that block assessments are in addition to regular assessments.

The court referred to its previous judgment in *Chandra Prakash Agrawal v. Assistant Commissioner of Income Tax*, which held that regular assessment proceedings, including reassessment, are not barred even when a block assessment has been made. The court also noted that the issue of whether the petitioner was entitled to deduction as a 'trader exporter' or a 'manufacturer exporter' was not addressed in the block assessment order, justifying the initiation of reassessment proceedings.

The court concluded that there was no illegality in the initiation of reassessment proceedings, even for periods covered under block assessment, as the assessment made under Chapter XIVB is in addition to regular assessments.

Conclusion:
The court dismissed all the writ petitions, holding that the initiation of reassessment proceedings was valid and within jurisdiction. The court also imposed consolidated costs of Rs. 10,000/- on the petitioner.