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TMI Blog2008 (8) TMI 86X X X X Extracts X X X X X X X X Extracts X X X X ..... partners. The Firm continued business up to 31.03.1992 i.e. the day on which the Firm was dissolved. In the subsequent period, viz. previous year relevant to Assessment Year 1993-94 certain transactions were carried out and hence, a return of income in the status of Association of Persons (AOP) declaring income of Rs.5,05,087/- came to be filed. 3. On 24.11.1995 search proceedings under section 132 of the Income Tax Act, 1961 (the Act) were carried out at the residential premises of three erstwhile partners of the petitioner Firm. Certain loose papers were found from the residence of one of the partners Mr. T.V. Sujan. The said documents were seized and statement of Mr. Sujan was recorded. An order under section 158BD of the Act came to be made on 31.03.1997 for the block period ending on 24.11.1995 in the status of AOP. The assessment was made pursuant to return of income for the block period filed on 03.03.1997 showing total undisclosed income at Rs.30 lacs. The assessment was made after various details and explanation were called for vide Notice dated 05.03.1997 to which a detailed reply was filed on 12.03.1997. The assessment was framed on a total income of Rs.40,50,900/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on provisions of section 147 of the Act as well as the Proviso to section 147 of the Act to submit that where the limitation has been prescribed for issuance of Notice reckoned from the end of a particular assessment year the scheme would fail in case of assessment for the block period because it was not possible to specify the assessment year from the end of which the time limit could be computed. 9. Similarly provisions of sections 151 153 of the Act were also pointed out to reiterate submission that in a case where the sanction was required as provided by section 151 of the Act, again same was from the expiry of four years from the relevant assessment year and the conditions could not be fulfilled. Similarly section 153 of the Act also provided different period of limitation as against the provisions of section 158BE of the Act which provides for time limit for completion of block assessment. 10. Another contention was that the assessment framed under Chapter XIV-B of the Act had to be framed after the final order was approved by the Commissioner of Income Tax and a subordinate authority cannot seek to re-open such assessment, as in the present case where the impugn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or block assessment falls in section 158BC. Section 158BA begins with a non obstante clause. It states that nothing contained in any other provisions of the 1961 Act, where search is initiated after June 30, 1995, under section 132 or in cases of requisition under section 132A after the cut off date, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of Chapter XIV-B. 12. Relying on section 158BA(1) the assessee claims that Chapter XIV-B is a special procedure for assessment of cases; that it constitutes a self-contained mechanism and, hence, it falls outside the scope of section 4(1) of the 1961 Act, particularly when section 4(1) imposes a charge on the 'total income' and not on the undisclosed income and, particularly when section 158BA(2) is an independent charging section in contrast to section 4(1) of the 1961 Act, which imposes a charge on the 'total income' of the previous year. According to the assessee, the charge under section 158BA (2) is on the 'block period' and not on the total income of the 'previous year'. Therefore, according to the assessee, Chapter XIV-B is a self-contained mechanism. 13. As stated above, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l income". Chapter IV deals with computation in cases of normal assessment. Chapter IV is not ruled out by the provisions of Chapter XIV-B. In this connection, we may also take note of section 158BH which deals with application of other provisions of the 1961 Act to the block assessment procedure in Chapter XIV-B. Section 158BH makes it clear that save as otherwise provided in Chapter XIV-B, all other provisions of the 1961 Act shall equally apply to block assessment. Therefore, one has to read the non obstante clause in section 158BA in juxtaposition with section 158BH. Keeping in mind the provisions of section 158BB and keeping in mind the Chapter XIV-B, we are of the view that Chapter IV is not ruled out from block assessment procedure and, therefore, one has to read section 158BB with section 4 of the 1961 Act. 14. There is one more fact which needs to be noted. A bare reading of the provisions of section 158BA and section 158BB indicates that the searches conducted by the Department are an important means of unearthing black money. However, undisclosed income has to be related to the different years in which the income was earned. The essence of the block assessment procedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chapter XIV-B and any other provisions of the 1961 Act, then the latter will operate. There is a fallacy in the argument of the assessee that the concepts of 'total income' and 'previous year' are given a go by in Chapter XIV-B. The above analysis of section 158BB indicates that both the concepts are retained in Chapter XIV-B. The only difference is that section 4 of the 1961 Act charges the total income of a person of one single previous year (unit of assessment) whereas section 158BA(2) levies a charge on the income of a person for the block period of previous years relevant to 10/6 assessment years. In our view, the words 'block period', as defined in section 158B(a), comprises previous years relevant to 10/6 assessment years as one unit of time for the purposes of assessment. As stated above, the object behind the enactment of Chapter XIV-B is to assess and compute 'undisclosed incomes' relatable to different accounting years in which the income is earned. Therefore, if the block period comprising of previous years relevant to 10/6 assessment years is treated by Parliament as one unit of time for assessment purposes, one has to correlate 'undisclosed income' to each of the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome determined as a result of search under section 132 or requisition under section 132A. Under this scheme, the undisclosed income detected as a result of any search initiated, or requisition made, after 30-6-1995, shall be assessed separately as income of a block of years. Where the previous year has not ended or the due date for filing a return of income for any previous year has not expired, the income recorded on or before the date of the search or requisition in the books of account or other documents, maintained in the normal course, relating to such previous years shall not be included in the block." 16. Therefore, this is a pointer to the fact that undisclosed income, in other words, the income which has not been disclosed and which has not been taxed, has to be assessed by adopting a special procedure. The special procedure has been evolved to save valuable time which is otherwise lost in the process of co-relating the undisclosed income to different assessment years by obviating the legal battles involving issues of procedure and interpretation of law. The legislature found it necessary to arrive at a cost effective, efficient and meaningful procedure to avoid litiga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Block period. - The undisclosed income of a person shall be assessed as the income of the block period consisting of a period of 10 previous years, preceding the previous year in which the search was conducted or the books of accounts, assets, etc. were requisitioned. The period of the current year upto the date of the search will also form part of the block period. (b) Undisclosed income.- The undisclosed income has been defined in clause (b) of section 158B. The term 'undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act. (ii) The undisclosed income of the block period, therefore, shall be aggregate of the total income of the previous years falling within the block period, computed on the basis of evidence found as a result of search and such other enquiries as the assessing officer may make ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed where initial search was conducted prior to 1st July,1995 irrespective of the last search or consequential searches which may have continued and concluded on or after that date i.e. 1st July, 1995. (ii) The order of assessment for the block period shall be passed within one year from the end of the month in which last of the search warrants is executed. Though the term execution has not been defined in Chapter XIVB, it will take its usual meaning which means the date on which the search has been completed. Where consequential searches or requisitions have been made, the period of limitation of one year shall start from the end of the month in which the last of such consequential operations were concluded. (iii) The assessment order for the block period shall be passed by an assessing officer not below the rank of Assistant Commissioner of Income-tax with the prior approval of the Commissioner of Income-tax...... (e) Procedure for making block assessment.- (i) The assessing officer shall serve a Notice on such person requiring him to furnish within such time, not being less than 15 days, as may be specified in the Notice, a return in the prescribed form and varied in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year relevant to the previous year in which the search has taken place irrespective of the fact whether the assessments for all these assessments years have already been made or not. For example, when a search has taken place on 11-7-1995, the block of 10 previous years shall be block relevant to assessment years 1986-87 to 1995-96 plus the period upto date of search i.e. from 1-4-1995 to 11-7-1995. (iv) Where the assessee offers no explanation about the nature of source of acquisition of certain assets or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of such assets may be deemed to be income of the relevant previous year as mentioned in section 158BB(2). The onus of proving to the satisfaction of the assessing officer that any undisclosed assets including the income from undisclosed property has already been disclosed in any return of income filed by the assessee before the initiation of the search shall be on the assessee." 18. Subsequently by the Finance (No.2) Act, 1996 certain amendments in Chapter XIV-B of the Act came to be made with retrospective effect from 01.07.1995 i.e. the date on which Chapter XIV-B of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to have any accounting period as the previous year under section 3 of the Income-tax Act. Consequently, the block period would be different in different cases depending upon the previous years adopted by the assessees before 1-4-1989. (ii) In view of this, the Act amends the definition of block period as consisting of previous years relevant to ten assessment years. This will make the block period uniform in case of all assessees. (iii) The amendment will take effect retrospectively from 1st July,1995." 19. Again by the Finance (No.2) Act, 1998 certain further amendments were made in Chapter XIV-B of the Act and the same have been explained by CBDT vide Circular No. 772 dated 23.12.1998. The relevant extract reads as under [1999] 235 ITR (st.) 35,74): "53. Clarificatory amendments in procedure for block assessment.- 53.1 To set at rest the controversy as to whether block assessment subsumes the regular assessments or is independent of the latter, the Act has inserted an Explanation after sub-section (2) of section 158BA of the Income-tax Act clarifying that assessments completed under Chapter XIV-B shall be in addition to regular assessments in respect of each previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd including the period up to the date of commencement of such search, or as the case may be, the date of such requisition, in the year of search or requisition. 69.3 The amendment takes effect from 1st June, 2001, and will apply in relation to searches initiated or requisitions made on or after that date". 21. The last amendment came to be made by the Finance Act, 2002 which has been explained in Circular No.8/2002 dated 27.08.2002. The relevant extract of the said Circular reads as under ([2002] 258 ITR (st.)13, 57) : "61. Rationalisation of the provisions of Chapter XIV-B relating to block assessments in cases of search and requisition. - 61.1 The existing provisions contained in Chapter XIV-B of the Income-tax Act provide for a single assessment of undisclosed income of a block period of six years, in case of search under section 132 or requisition under section 132A and lay down the manner in which such income is to be computed, and the interest or penalty which may be levied in certain circumstances. 61.3.1 Some appellate authorities have held that income which can be included in the block assessment is only such income which is directly evidenced by material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce under section 148 of the Act is required to be issued for the purpose of proceeding under Chapter XIV-B of the Act. (c) The order of assessment would be a consolidated order for the entire block period obviating need for multiple assessments for each of the assessment years included in the block period. (d) The definition of block period indicates that what is material is, to constitute the block period, the specified 10/6 years i.e. preceding the previous year in which search was conducted and includes remainder period up to the date of search. In other words the term block period does not have any nexus with any particular assessment year. (e) The assessment for the block period has to be framed within one year/two years from the end of the month in which the last of the authorisations for search under section 132 of the Act was executed. The authorisation is deemed to have been executed on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued. (f) For completing block assessment in the case of other person referred to in section 158BD of the Act the period of limitation wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant assessment year. (c) Section 149(1) of the Act prescribes time limit for issuance of Notice under section 148 of the Act, again for the relevant assessment year; in either of the clauses (a) or (b) the period that is prescribed is from the end of the relevant assessment year. Similarly under sub-section (3) if the reassessment is proposed in case of a person treated as an Agent of a non-resident, notice under section 148 of the Act cannot be issued after the expiry of prescribed period from the end of the relevant assessment year. (d) Similarly section 151 of the Act provides for sanction for issue of Notice and there also the concept of relevant assessment year and the limitation from the end of the relevant assessment year has been laid down. (e) Section 153 of the Act which provides for time limit for completion of assessments and reassessments, provides under sub-section (2), the limitation period of one year from the end of the financial year in which the notice under section 148 was served for making assessment/reassessment under section 147 of the Act. 24. In the aforesaid circumstances, when one considers the entire scheme relating to procedure for assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... XIV-B of the Act. 28. Under section 158B of the Act "Block period" and "Undisclosed income" have been defined. Section 158BA of the Act opens with non obstante clause and provides that in a case of search initiated after 30.06.1995 the Assessing Officer shall proceed to assess the undisclosed income in accordance with provisions of Chapter XIV-B of the Act, notwithstanding anything contained in any other provisions of the Act. Therefore, provisions of section 158BA(1) of the Act have to be read in conjunction with section 158BH of the Act. The legislature has provided a special procedure for assessment of search cases and assessment has to be framed in accordance with the provisions of Chapter XIV-B of the Act. On a harmonious reading of both sections 158BA and section 158BH of the Act it becomes clear that only where a provision is not made in Chapter XIV-B of the Act providing for a special procedure for assessment will other provisions of the Act be made applicable. 29. Section 158BB of the Act provides for modality of computation of undisclosed income of the block period. Such undisclosed income of the block period has to be the aggregate of the total income of the prev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at section 158BH of the Act has limited application. 31. Time limit for completion of block assessment has been provided in section 158BE of the Act. It indicates that the same has to be within one year/two years from the end of the month in which the last of the authorisations for search under section 132 of the Act was executed etc. For the present, it is not necessary to refer to the other provisions of the said section. However, Explanation 2 as appearing in section 158BE of the Act gives an indication as to what would be the date on which an authorisation shall be deemed to have been executed. Under clauses (a) and (b) of Explanation 2 different points of time have been specified. But in no case, can one envisage the applicability of period of limitation prescribed under section 153 of the Act for completion of assessments and reassessments. The Revenue cannot contend that for the purpose of reassessing the so called escaped undisclosed income revenue will resort to the limitation under section 153 of the Act, because undisclosed income has to be assessed in the manner provided and by adopting the procedure provided in Chapter XIV-B of the Act. Nor is it possible to resor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what is inherently not possible. It cannot be a case of non filing of return considering the provisions of section 158BC of the Act. It cannot be a case of non disclosure of material facts considering the fact that everything which was undisclosed has already been unearthed at the time of search and the definition of 'undisclosed income' itself indicates that not only what has been seized or recovered, but even income or property which has not been or would not have been disclosed for the purpose of the Act has been roped in. Furthermore, section 158BB of the Act also provides for not only for requisition of Books of Accounts or other documents, but on the basis of evidence found as a result of search and such other materials or information as are available with the Assessing Officer, undisclosed income of the block period shall be computed. Therefore, even if, assuming for the sake of argument, some income has not been disclosed in the return furnished under section 158BC of the Act, the Assessing Officer is bound to assess all undisclosed income after processing the entire material available with Assessing Officer. The Assessing Officer cannot be heard to state that undisclosed i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial being available on record the same escaped scrutiny at the hands of two officers, one of them being a superior officer in the hierarchy. 35. As already noted hereinbefore, the entire scheme for bringing to tax income which has escaped assessment under sections 147 to 153 of the Act specifically relates to a specific assessment year and different time limits are provided at different stages which are all inter-linked and commence from the end of the relevant assessment year. The definition of 'assessment year' as provided in section 2(g) of the Act means the period of 12 months commencing on the first day of April every year. This definition cannot by any stretch of imagination be made applicable to the term 'block period' which has been defined by section 158B(a) of the Act. On a plain reading the concept of block period cannot take within its fold the meaning of an assessment year. Similarly the term 'assessment year' by its very definition, cannot be read to mean 'block period'. 36. In light of this specific distinction in the statutory scheme brought about by specific definitions of the two terms, 'assessment year' and 'block period', the submission on behalf of Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essment year' the definition of block period would not have provided that 'block period' means period comprising previous years relevant to 10/6 assessment years. To put it differently, reference to the number of assessment years is only a means, a measure to indicate and specify the period of previous years which would comprise block period. Revenue, therefore, cannot contend successfully that wherever the term 'assessment year' is used in the group of Sections from Section 147 to 153 of the Act the said term has to be replaced by the term 'block period'. Furthermore, the amendment which is retrospectively made in the definition of the block period by The Finance (No.2) Act, 1996, itself indicates that originally the term block period meant as consisting of 10 previous years prior to the previous year in which the search was conducted and also the period of current previous year up to the date of search, but, before adoption of uniform previous year, in case of different assesses, 'block period' would be different depending on the accounting period adopted in terms of section 3 of the Act. To obviate this situation the definition of block period was amended. This becomes clear fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment procedure does not result in the procedures being independently workable, only then the question of resolving the conflict would arise. But to the contrary, in the present case, in light of provisions of section 158BH of the Act, once there is a conflict between the two streams of procedure, as laid down by the Apex Court, provisions of Chapter XIV-B of the Act shall prevail and have primacy. 43. Thus viewed from any angle, the stand of Revenue does not merit acceptance. Once assessment has been framed under section 158BA of the Act in relation to undisclosed income for the block period as a result of search there is no question of the Assessing Officer issuing notice under section 148 of the Act for reopening such assessment as the said concept is abhorrent to the special scheme of assessment of undisclosed income for block period. At the cost of repetition it is required to be stated and emphasised that the first Proviso under section 158BC(a) of the Act specifically provides that no notice under section 148 of the Act is required to be issued for the purpose of proceeding under Chapter XIV-B of the Act. 44. In the circumstances, impugned notice dated 16.04.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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