The Assistant Commissioner of Income Tax vs Sunil Kumar Jain

The only question involved in this tax case is, Whether sections 147/148 of the Income Tax Act, 1961 (the Act) providing for reassessment are applicable to the block assessment under Chapter XIVB of the Act or not.

It arises in this tax appeal filed u/s 260A of the Act against the order of the Income Tax Appellate Tribunal, Bilaspur Bench, Bilaspur (the Tribunal) dated 22.01.2010 dismissing the appeal filed by the Income Tax Department (the Department) against Shri Sunil Kumar Jain (the Assessee) for the block period 01.04.1989 to 17.11.1999.

THE FACTS

The Assessee is a jeweller. A search took place on 17.11.1999 in the residential as well as business premises of the Assessee. Thereafter, a notice u/s 158BC of the Act was issued on 10.07.2000. It was served on the Assessee on 29.07.2000. 2. The Assessee filed his return on 11.09.2000 declaring total undisclosed income of Rs. 41,692/-. The Assessing Officer (the AO), by his order dated 30.01.2002, framed the block assessment of Rs. 98,002/-.

Aggrieved by the aforesaid order, the Assessee filed a revision u/s 264 of the Act. It was partly allowed by the Commissioner of Income Tax, Raipur (the CIT) on 26.03.2002 granting relief of Rs. 15,450/-.

Subsequently, the CIT initiated a proceeding u/s 263 of the Act and remanded the case back to the AO for re-consideration on 25.03.2004.

Aggrieved by the aforesaid order, the Assessee filed an appeal before the Tribunal. It was allowed on 14.01.2005 and order of the CIT dated 25.03.2004 u/s 263 of the Act was set aside.

Subsequently, a notice u/s 148 read with section 158BH of the Act was issued for reassessment on 13.03.2005. This notice was on the basis of same material on which the CIT had passed the order u/s 263 of the Act.

The Assessee filed a writ petition namely WP(T)-1676 of 2005, challenging the notice u/s 148 of the Act. However, no interim order was granted in the writ petition and the assessment proceedings before the AO continued. The AO by his order dated 29.03.2006, assessed the undisclosed income of Rs. 2,96,74,778/-.

The Assessee filed an appeal before the Commissioner of Income Tax (Appeals) (the CIT-A). It was allowed on 29.05.2006 and the order of the AO was set aside essentially on the following findings:

(i) The block assessment cannot be reopened under sections 147 and 148 of the Income Tax Act;

(ii) The reasons for re-opening of the assessment are the same for which the action was taken and the order passed u/s 263 of the Act. This order has been set aside by the Tribunal and the order of the Tribunal has become final. Now, on the basis of the same material, notice u/s 148 of the Act, cannot be issued;

(iii) The AO has completed the assessment on protective basis, however, there cannot be protective re-opening;

(iv) The fact that the AO had made protective assessment shows that he was not sure about the income of the Assessee and as such it cannot be said that there was any reason to believe that the income of the Assessee had escaped assessment and the condition precedent for issuing of the notice u/s 148 of the Act was not satisfied;

(v) There was no fresh material and the AO could not to review his own decision as it was impermissible under the law;

(vi) The notice u/s 148 was issued four years after it was first assessable in the block period and the conditions precedent u/s 147 of the Act were not fulfilled.

(vii) The order is illegal.

Apart from the aforesaid findings, there were other objections including non-application of mind and limitation u/s 149 of the Act.

After order of the CIT-A dated 29.05.2006, the WP(T) 1676 of 2005 was dismissed on 26.06.2006 on the ground that it has become infructuous.

The Department filed an appeal before the Tribunal against the order of the CIT-A dated 29.05.2006. It was dismissed essentially on the ground that sections 147/148 of the Act were not applicable to the block assessment under Chapter XIVB of the Act. Hence, the present appeal.

QUESTIONS FOR DETERMINATION

We have heard counsel for the parties. The appeal was admitted for hearing on 06.07.2011 on the following substantial questions of law:

(i) Whether on the facts and in the circumstances of the case and in law the tribunal was justified in holding that the provisions of Section 148 of the Act are not applicable to the block assessment order passed under Chapter XIVB of the Act and thereby allowing relief to the assessee;

(ii) Whether on the facts and circumstances of the case, the CIT(A) and the Tribunal was legally justified in holding that the entire proceedings in re-assessment is vitiating on account of issuance of notice u/s 148 of the Income Tax Act, 1961?

The aforesaid two questions are substantially same as the question mentioned in the opening paragraph of this judgement.

THE DECISION Submissions of Department Counsel

The counsel for the Department relies upon section 158BH of the Act, and the decisions in:

(i) Commissioner of Income Central II Vs. Suresh N. Gupta, (the Suresh-Gupta case); and

(ii) Commissioner of Income Tax Vs. Peerchand Ratanlal Baid (HUF), Proprietor Capital Travels,

He submits that:

� Section 58BH applies all other provisions of the Act to the assessment under Chapter XIVB of the Act;

� Sections 147 and 148 of the Act are other provisions of the Act and are also applicable for the block assessment made under the Chapter;

� The entire proceeding can not be set aside on the ground that sections 147/148 of the Act are not applicable to the block assessment under this Chapter.

Chapter XIVB-Special Procedure

Chapter XIVB is titled as ''Special procedure for assessment of search cases''. It provides special procedure for assessment under such cases. Under this Chapter, the assessment of many years together and not only one year is done. This is called block period.

Section 158B is titled as ''Definitions''. It defines block period as well as undisclosed income.

At the relevant time, Chapter XIVB provided the ''block period'' to mean, the previous years relevant to ten assessment years preceding the previous years in which the search was conducted and up to the date of commencement of the search.

Section 158BH of the Act is in Chapter XIVB of the Act. It is titled ''Application of other provisions of the Act'': It applies other provisions of this Act to the block assessment under this chapter. It was necessary to clarify this as this chapter provides a special procedure in case of search for assessing the income for the block period.

Nevertheless, a provision will become applicable by virtue of 158BH only if it can be applied on its wording to Chapter XIVB. The question is, can it be so applied?

The Suresh-Gupta case is related to the block assessment but the question whether sections 147/148 of the Act were applicable in the block assessment or not, was not involved therein. However, in Peerchand case, this very question was involved and was answered in favour of the Department.

Sections 147/148 Should Be Strictly Construed

Kanga, Palkhivala and Vyas on The Law and Practice of Income Tax, Volume-II, Ninth Edition, page 1826 explains the scope of the section 147 of the Act as follows:

This section imposes no charge on the subject but deals merely with the machinery of assessment, Bhimraj Panna Lal Vs. The Commissioner of Income Tax, , affirmed in Bhimraj Pannalal Vs. Commissioner of Income Tax, Bihar and Orissa, ; Radhakant Jagannath Prasad Vs. V.K. Johri and Another, ; CHHAGAN LAL AND OTHERS Vs. Income Tax OFFICER, B-WARD, BIKANER, AND ANOTHER., ; R. Dalmia and Others (A.O.P.) Vs. Commissioner of Income Tax (and Vice Versa), , affirmed in R. Dalmia and Another Vs. Commissioner of Income Tax, ) on another issue; Commissioner of Income Tax Vs. V.D. Saraf (Huf), Sardar Harvinder Singh Sehgal and Others Vs. Assistant Commissioner of Income Tax and Others, ; and in interpreting provisions of this kind the rule is that that construction should be preferred which makes the machinery workable (1940) 8 ITR 442 (Privy Council) Commissioner of Income Tax Vs. M/s. Sun Engineering Works (P.) Ltd., and s. 1 under Interpretation of the Income Tax Act; This, however, does not mean that the section is to be liberally construed; since the reopening of an assessment is a power of an extraordinary nature, the section should be strictly construed. New Kaiser-I-Hind Spg. and Wvg. Co. Ltd. Vs. Commissioner of Income Tax, Bombay City-III, Income Tax Officer, Azamgarh and Another Vs. Mewalal Dwarka Prasad,

It is in this light that sections 147/148 are to be construed i.e. they are to be construed strictly.

Section 147 of the Act is titled as ''Income Escaping Assessment''. It provides that if the Assessing Officer has reason to believe that any income chargeable to the tax has escaped in any assessment year, he could re-assess the income subject to fulfilling other conditions mentioned in that section.

Section 148 is titled as ''Issue of notice where income has escaped assessment''. It provides issuance of notice before making the assessment, re-assessment or re-computation u/s 147 of the Act.

Section 147 of the Act uses the words ''in any assessment year''; it does not use the words ''in any assessment year or for any block period''. Had it used the words ''in any assessment year or for any block period'' the matter would have been different but in absence of these words, can we read these words in the section when they are not there. If we do so, then will it be not stretching the words too far?

Often the block assessment is in respect of the years for which the assessment has already been done under the Act. The block assessment is a kind of re-assessment, on the basis of material found in the search. This is also indicated by first proviso to section 158BC(a) of the Act.

Section 158BC is titled as ''Procedure for Block Assessment''. The first proviso (see below)1 to section 158BC(a) of the Act provides that for the purpose of proceedings under Chapter XIVB of the Act, no notice u/s 148 of the Act is required to be issued.

In case sections 147/148 of the Act are applicable to the block assessment, it will amount to reassessment of the reassessment proceeding.

Section 147 of the Act has not used the word ''the block period''. The reason seems to be simple that the block assessment itself is the re-assessment proceedings. There was no necessity for providing reassessment of the reassessment proceedings.

The Gujarat High Court has considered this question in detail in Cargo Clearing Agency (Gujarat) Vs. Joint Commissioner of Income Tax, (the Cargo-Clearing case) and has held that sections 147/148 of the Act are not applicable to the assessment under Chapter XIVB of the Act. We agree with the same and are unable to subscribe to the view taken by the Gauhati High Court in the Peerchand case.

The material for notice for reassessment u/s 148 of the Act is the same as was for passing order u/s 263 of the Act. The order u/s 263 of the Act has been set aside by the Tribunal on the ground that the initial order passed by the AO was not prejudicial to the interest of the Revenue.

In view of above, the CIT-A has held that once the order u/s 263 has been set aside, the same material cannot be used for notice u/s 148 of the Act. However, neither the Tribunal has gone into this question nor this case has been admitted on the same. Thus, we refrain from expressing our view on this point or any other findings recorded in favour of the Assessee by the CIT-A.

CONCLUSIONS

Our conclusion is, that sections 147/148 of the Act for reassessment are not applicable to the assessment under Chapter XIVB of the Act. In view of the above, the questions are answered in favour of the Assessee and against the Department. The tax case is dismissed.

1 The relevant portion of the proviso is as follows:

Provided that no notice u/s 148 is required to be issued for the purpose of proceeding under this Chapter: