2017 (5) TMI 1406 - HC - Income Tax

Reopening of assessment - pendency of the block assessment proceedings - Held that - The Court is satisfied that reopening of the assessment for AYs 1994-95 to 1996-97 by the impugned notices dated 31st May 2001 under Section 148 of the Act during the pendency of the block assessment proceeding was impermissible in law. Having initiated the proceeding under Section 158BC for the block assessment there was no justification to issue the aforementioned notice under Section 147 of the Act as that would undoubtedly result in parallel proceedings. They are based on the same materials which form subject matter of the block assessment. The impugned notices dated 31st May 2001 are hereby quashed. As clarified that the Court has not expressed any view on any aspect of the block assessment proceeding or the materials gathered for that purpose and which form the subject matter of the proceedings before the ITSC. By virtue of all the applications filed by the Petitioners having been allowed to be proceeded with by the order 3rd August 2016 of the ITSC it will be open to the ITSC to examine these aspects in the proceedings pending before it. However it is also clarified that neither ITSC nor any of the parties to the pending proceedings refer to any part of the notices under Section 147 of the Act or the reasons for such reopening as such notices have been quashed by the present judgment of this Court.

Issues Involved:
1. Validity of notices issued under Section 148 of the Income Tax Act, 1961.
2. Legality of parallel proceedings under Section 147 of the Act during the pendency of block assessment proceedings under Section 158BC.
3. Impact of the Supreme Court's decision on the block assessment proceedings.
4. Role and decision of the Income Tax Settlement Commission (ITSC).

Detailed Analysis:

1. Validity of Notices Issued Under Section 148 of the Income Tax Act, 1961:

The petitioners, South Asian Enterprises Limited (SAEL) and VLS Finance Limited (VLS), challenged the notices issued under Section 148 of the Income Tax Act, 1961, seeking to reopen assessments for AYs 1994-95, 1995-96, and 1996-97. The petitioners contended that these notices were based on the same material for which block assessment proceedings had already been initiated under Section 158BC. They argued that the reopening was a mere change of opinion on the same facts and material, which is unsustainable in law. The court ultimately quashed the notices dated 31st May 2001 under Section 148, deeming them impermissible in law during the pendency of the block assessment proceedings.

2. Legality of Parallel Proceedings Under Section 147 of the Act During the Pendency of Block Assessment Proceedings Under Section 158BC:

The court examined whether the Department could initiate parallel proceedings under Section 147 while block assessment proceedings under Section 158BC were pending. It was noted that the impugned notices under Section 147 were issued consequent upon the search and seizure operations and subsequent to the issuance of notices under Section 158BC. The court referred to several precedents, including decisions from the Madhya Pradesh High Court, Gujarat High Court, Bombay High Court, and Kerala High Court, which held that once a search was conducted and block assessment proceedings were initiated, issuing notices under Section 148 based on the same material was not permissible. Consequently, the court concluded that the reopening of assessments for AYs 1994-95 to 1996-97 during the pendency of the block assessment proceedings was impermissible in law.

3. Impact of the Supreme Court's Decision on the Block Assessment Proceedings:

The court acknowledged the Supreme Court's decision in Civil Appeal No. 2667/2007, which allowed the block assessment proceedings to continue. This decision had a bearing on the present petition as it confirmed the validity of the block assessment proceedings initiated by the Department. The court noted that the issues raised in the block assessment proceedings, including the claim of depreciation on cinematographic films and income from lease rentals, were also the subject matter of the settlement applications before the ITSC.

4. Role and Decision of the Income Tax Settlement Commission (ITSC):

The petitioners had approached the ITSC with applications on 1st June 2016. The ITSC, in its order dated 3rd August 2016, concluded that the petitioners had satisfactorily explained the manner of deriving the undisclosed income offered in the settlement application. The ITSC allowed the settlement applications to proceed further, and the Department accepted this order. The court clarified that it had not expressed any view on the block assessment proceedings or the materials gathered for that purpose, which were pending before the ITSC. The ITSC was free to examine these aspects in the proceedings pending before it.

Conclusion:

The court quashed the notices dated 31st May 2001 issued under Section 148 of the Act, deeming them impermissible during the pendency of the block assessment proceedings. The court did not express any view on the block assessment proceedings or the materials gathered for that purpose, leaving it to the ITSC to examine these aspects. The petition was disposed of with no orders as to costs.

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