2021 (5) TMI 38 - HC - Income Tax

Validity of block assessment - time limit for completion of block assessment - as per assessee proceedings having been initiated after a lapse of 6 years from the order of this Court - HELD THAT - As per section 158BE of the Income Tax Act, 1961, an order has to be passed within a period of one year from the end of the month in which the last of the authorisations for such under section 132 or requisition under Section 132A, as the case may be, was executed in case where a search is initiated or books of account or other documents or assets position after the 30th day of June, 1995, but before the first day of January 1997. In this case admittedly the assessment order who had been passed within the limitation prescribed by 31.1.1997 by the assessing officer. The assessing officer was not only required to issue notice within 15 days of such requisition/authorization but also required to complete the assessment procedures within a period of one year. Thus, as the provisions as they read do not allow any elaborate cross examination of witnesses by an assessee. These assets have to be taxed in the hands of the petitioner. To assess tax on the assets seized from the petitioner, there is no necessity for extending the petitioner the benefit of cross examination of witnesses. Also, no useful purpose would also be served at this distant point of time to summons witnesses to come for cross examination who allegedly gave statements against the petitioner for licenses issued when the petitioner was the Chairman, Managing Director of the Tamil Nadu Minerals Ltd. and this distant point of time. It will neither serve any useful purpose to the petitioner nor to the Income Tax Department. However, to the extent undisclosed income in the form of assets viz. cash, jewellery and valuable assets were recovered/seized from the petitioner and his associates, the petitioner is liable to pay tax. Therefore, notwithstanding failure on the part of the assessing officer extend the benefit of cross examination of persons who have given statements against the petitioner during investigation, the petitioner is required to discharge income tax liability on the assets viz. undisclosed cash, jewellery and the valuables recovered from his possession from various premises. Under these circumstances, this Court is inclined to dispose the writ petition by directing the respondent to complete the assessment in sofar as the assets recovered from the petitioner and his associates during the search conducted on 19/20.1.1996 within a period of three months from date of receipt of a copy this order

Summary

Issues Involved:
1. Delay in initiating reassessment proceedings.
2. Violation of principles of natural justice.
3. Procedural irregularities in the assessment process.
4. Tax liability on undisclosed assets.

Detailed Analysis:

1. Delay in Initiating Reassessment Proceedings
The petitioner argued that the reassessment proceedings were initiated after an unreasonable delay of six years from the High Court's order dated 03.09.2007. The petitioner cited several precedents, including Manik Chand Burman vs. Income-Tax Officer and K. Iswara Bhat vs. Commissioner of Agricultural Income-tax, to support the contention that reassessment should be completed within a reasonable time even when no specific time limit is prescribed. The Court acknowledged the delay but emphasized that the Income Tax Department's appeal to the Supreme Court, which was dismissed due to delay, contributed to the postponement.

2. Violation of Principles of Natural Justice
The petitioner contended that the reassessment proceedings violated principles of natural justice as the Department failed to provide an opportunity for cross-examination of witnesses who had given statements against the petitioner. The High Court's Division Bench had previously directed that the petitioner be given such an opportunity. The Court noted that the Income Tax Department's failure to allow cross-examination was a significant procedural lapse. However, the Court also recognized the impracticality of summoning witnesses after such a long period.

3. Procedural Irregularities in the Assessment Process
The original assessment order was criticized for procedural irregularities, including:
- No opportunity for the petitioner to cross-examine witnesses.
- Reliance on statements from only 23 out of 994 licensees.
- Lack of corroborative evidence.
- Paucity of time for a thorough investigation due to statutory deadlines.
The Division Bench had remanded the case for fresh consideration, emphasizing these irregularities. The Court reiterated these points, highlighting the necessity for a fair and thorough reassessment process.

4. Tax Liability on Undisclosed Assets
Despite procedural issues, the Court emphasized that the petitioner is liable to pay tax on the undisclosed assets (cash, jewelry, and valuables) seized during the search. The Court stated that these assets must be taxed in the hands of the petitioner, irrespective of the procedural lapses in the reassessment process.

Conclusion:
The Court directed the Income Tax Department to complete the assessment concerning the assets recovered from the petitioner within three months, allowing the petitioner to file additional representations and ensuring an opportunity for a hearing. The writ petition was disposed of with these observations, emphasizing the need for a fair reassessment process while upholding the tax liability on undisclosed assets.