2010 (4) TMI 445 - HC - Income Tax

Reassessment- Income Escaping assessment - The assessee firm was engaged I the business of gold and silver ornament apart from trading business the also did job work. During a search a block assessment was made under section 158BC of the Act for the period commencing from April 1 1987 to November 3 1996 and undisclosed income was determined for the assessment year 1996-97 and part of the assessment year 1997-98. Tribunal allows the appeal of the assessee holding that the amount was not undisclosed income. After this reopen the case under section 148. Tribunal having set aside the block assessment these amount were to be treated as having escaped assessment in the assessee s hand. Held that- once the Tribunal had arrived at the conclusion that the amounts were not undisclosed income. Once the Tribunal had arrived at the conclusion that the amounts were not undisclosed income, they could not be treated as income chargeable to tax under the provision of section 147 of the Act. It was not open to the assessing authority to circumvent the order of the Tribunal and to take a different view. The order of the Tribunal was binding on the assessing authority. Therefore, initiation of proceedings u/s 14 read with section 148 of the Act for the assessment year 1996-97 and 1997-98 was barred, erroneous and bad in law.

Issues Involved:
1. Validity of notices issued under Section 148 of the Income-tax Act, 1961 for the assessment years 1996-97 and 1997-98.
2. Whether the income alleged to have escaped assessment was already considered in the block assessment and determined as not undisclosed income by the Tribunal.
3. Compliance with the conditions under the first proviso to Section 147 of the Income-tax Act for issuing notices after four years from the end of the relevant assessment years.

Issue-wise Detailed Analysis:

1. Validity of Notices Issued Under Section 148:
The petitioner challenged the validity of the notices dated March 20, 2003, issued under Section 148 for the assessment years 1996-97 and 1997-98. The petitioner argued that the notices were issued beyond the permissible period of four years from the end of the relevant assessment years without recording any failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment.

2. Consideration of Income in Block Assessment:
The petitioner contended that the alleged escaped income had already been assessed as undisclosed income in the block assessment order dated November 27, 1997. However, the Tribunal, in its order dated August 29, 2002, held that these amounts were not undisclosed income. The relevant paragraphs from the Tribunal's order were cited to support this argument. For instance, the Tribunal found that the income shown by Smt. Ambika Devi from saree business could not be treated as undisclosed income since it was declared in her return prior to the search. Similarly, the Tribunal held that the gold jewellery weighing 5090.110 grams recorded in the order book and other seized documents were part of the regular books of account and could not be treated as undisclosed income.

3. Compliance with Conditions under First Proviso to Section 147:
The petitioner argued that for reopening assessments after four years, the assessing authority must record a finding that there was a failure on the part of the assessee to disclose fully and truly all material facts necessary for the assessment. The court noted that no such finding was recorded in the reasons provided for reopening the assessments. The court referred to the decision of the Madras High Court in Fenner (India) Ltd. v. Deputy CIT, which held that the failure to record such a finding would vitiate the notice and the entire proceeding.

Conclusion:
The court concluded that the initiation of proceedings under Section 147 read with Section 148 for the assessment years 1996-97 and 1997-98 was barred and illegal. The court emphasized that the amounts alleged to have escaped assessment were already considered and determined as not undisclosed income by the Tribunal. Moreover, the notices were issued beyond the permissible period without recording the necessary findings as required under the first proviso to Section 147. Consequently, the writ petition was allowed, and the impugned notices and proceedings were quashed.

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