1999-VIL-242-KER-DT

Equivalent Citation: [1999] 236 ITR 869, 152 CTR 443, 103 TAXMANN 117

KERALA HIGH COURT

Date: 06.01.1999

MALAYIL BANKERS

Vs

ASSISTANT COMMISSIONER OF INCOME-TAX

BENCH

Judge(s)  : P. SHANMUGAM

JUDGMENT

 

P. SHANMUGAM J.---O. P. No. 3966 of 1998 is filed against the order of regular assessment for the years 1995-96 and 1996-97 on the ground that the assessment period is included in the block assessment and, therefore, there cannot be a separate independent assessment. In O. P. No. 20252 of 1998 the challenge is against levy of penalty by the Assessing Officer.

The brief facts of the case are as follows : The petitioner is a firm carrying on the business of money-lending. In the assessment years 1995-96 and 1996-97, the petitioner filed the return under section 139 of the Income-tax Act showing loss for the four years. While the assessment is being processed the first respondent passed an order on December 20, 1996, under section 131(3) of the Income-tax Act to conduct a survey under section 133A of the Income-tax Act in the premises of the petitioner and impounded the books as per exhibit-P-2 order. The Commissioner of Income-tax by exhibit-P-3 order impounded the books of account and issued further orders to freeze the bank accounts of the petitioner. A compulsory audit was ordered under section 142(2A) of the Act. In the course of all these proceedings, the respondents initiated action under Chapter XIV-B of special procedure for assessment of search cases and issued notice dated December 1, 1997, under section 158BC of the Act proposing to make a block assessment for the period from April 1, 1987 to August 19, 1997. In the meanwhile the respondent completed the assessment under section 143 (exhibit P-7) for the year 1995-96 and a demand notice exhibit P-8 was issued. The petitioner challenges this assessment on the ground that the Assessing Officer has no jurisdiction to complete the assessment under section 143(3) after the issue of notice under section 158BC of the Act. Therefore, the question that arises for consideration in this case is whether a regular assessment cannot be made when a block assessment is pending.

In support of his contention, learned counsel for the petitioner relied on a judgment of this court in N. T. John v. CIT [1997] 228 ITR 314, and another decision of the Punjab and Haryana High Court in Raja Ram Kulwant Rai v. Asst. CIT [1997] 227 ITR 187.

Chapter XIV-B of the Act provides a special procedure for assessment of search cases. Section 158B defines block period as well as undisclosed income. Section 158BA deals with the assessment of undisclosed income as a result of search. This provision empowers the Assessing Officer to proceed to assess the undisclosed income in accordance with the provisions of this Chapter where there was a search under section 132. Sub-section (2) of section 158BA states that the total undisclosed income relating to the block period shall be charged to tax. Therefore, by a plain reading of section 158BA and the heading, it is clear that this provision is intended to assess the undisclosed income in contradistinction with a regular assessment. This section though refers to a block period, cannot make an assessment other than the undisclosed income. The Explanation inserted by the Finance (No. 2) Act of 1998, with effect from July 1, 1995, clears all the doubts, if any, on the issue. Explanation (a) states that the assessment made under this Chapter shall be in addition to the regular assessment. Explanation (b) states that the total undisclosed income relating to the block period shall not be included in any regular income, in any assessment. In the light of the Explanation to section 158BA the question is to be answered against the assessee. The contention that once an assessment has been framed for a block period under section 158BC the Income-tax Officer is debarred from framing an assessment under section 143 cannot be accepted. The judgment referred to on behalf of the petitioner can have no application since the Explanation has been inserted to remove any doubt and it is now made clear that the block assessment shall be in addition to the regular assessment. Therefore, there is no scope for any ambiguity or doubt in this regard. Clarification in the Memorandum explaining the provisions of the Finance (No. 2) Bill, 1998, states as follows:

"To set at rest the controversy as to whether block assessment subsumes the regular assessments or independent of the latter, the Bill proposes to clarify that block assessment shall be made in addition to the regular assessment of previous years included in the block period. Further, it proposes to provide that income assessed in regular assessment shall not be included in the block period and income assessed in the block period shall not be included in the regular assessment. The clarificatory amendment is proposed to be inserted retrospectively from the 1st day of July, 1995."

If the argument of learned counsel is accepted, ultimately, it will lead to disastrous consequences. The Assessing Officer assessing undisclosed income of block period may have to assess all the ten preceding previous years and part of the current year up to the date of search by reopening them which will have an undesirable effect on the assessees in general. The very purpose of making procedure for assessment in such cases simple and effective would become unwieldy and protracted.

The decision cited by learned counsel for the petitioner reported in Kelappan Nair v. Payingaten [1961] KLT 527, held that the Explanation does not explain or add to the scope of the original section. The Explanation in this case is inserted probably in the light of the two decisions referred to by learned counsel for the petitioner and for removal of doubts. It is the declaration of the intention of the Legislature as to the scope of section 158BA.

For all these reasons, no grounds are made out to interfere with the assessment order exhibit P-7 and demand notice exhibit P-8. Original petition fails and it is accordingly dismissed.

O. P. No. 20252 of 1998 : In this original petition, the penalty proceedings initiated under section 271(1)(c) are also challenged on the same grounds, namely, that the respondent has no jurisdiction when proceedings under section 158BC of Chapter XIV-B of the Act have been initiated. In this case, the assessment was completed under section 143 of the Act by assessment order dated February 5, 1998, and penalty proceedings under section 271(1)(c) of the Act have been initiated and after following the procedure, passed an order of penalty. The petitioner has got further statutory remedies against this order. The grounds raised by the petitioner that the respondent has no jurisdiction when block assessment is pending, cannot be sustained for the reason stated earlier. Hence, this original petition fails and it is accordingly dismissed.

 

 

 

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