IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No 1148 of 1998 with SPECIAL CIVIL APPLICATION NOS. 1144/98 TO 1147/98, 1149/98, 1150/98 & 1152/98 TO 1154/98 For Approval and Signature: Hon'ble MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH ============================================================ 1. Whether Reporters of Local Papers may be allowed to see the judgements? 2. To be referred to the Reporter or not? 3. Whether Their Lordships wish to see the fair copy of the judgement? 4. Whether this case involves a substantial question of law as to the interpretation of the Constitution of India, 1950 of any Order made thereunder? 5. Whether it is to be circulated to the Civil Judge? -------------------------------------------------------------- N.R PAPER & BOARD LIMITED & ORS. Versus DY. COMMISSIONER OF INCOME TAX -------------------------------------------------------------- Appearance: MR SN SOPARKAR, Advocate for the Petitioners MR MIHIR JOSHI with MR MANISH R BHATT, Advocates for the Respondents -------------------------------------------------------------- CORAM : MR.JUSTICE R.K.ABICHANDANI and MR.JUSTICE KUNDAN SINGH Date of decision: 23/03/98 ORAL JUDGEMENT (Per R.K.Abichandani,J.) In this group of petitions, the petitioner assessees have invoked the writ jurisdiction of this Court, seeking to challenge the notices issued to them under Section 143(2) of the Income Tax Act, 1961, which are all at Annexure "A" to these petitions, by which the Deputy Commissioner of Income Tax, Special Range II, Surat, required these assessees to attend his office on the dates mentioned in the notices, in connection with the returns of income submitted by them for the Assessment Year 1995-96. After the notices were issued in these petitions and affidavits in reply and rejoinders were filed, both the sides made a request to this Court to hear the matters finally and accordingly they were heard finally at length on all the contentions raised. The main arguments has been canvassed in Special Civil Application No. 1148/98 and both the sides have referred to the papers produced therein. It was pointed out that all these matters contained identical points except that in the writ petition other than Special Civil Application Nos. 1148/98 and 1153/98, no grounds were given by the Assessing Officer for proceeding with the regular assessments under Section 143(2) in connection with the returns of income submitted by the assessees for the assessment year 1995-96. Since common points have been raised and argued together in this group of petitions, they are being disposed of by this common judgement and order. 2. According to the petitioners, a search and seizure operation was carried on from 1.12.1995 and concluded on 6.1.1996 and the block assessment under Chapter XIV-B of the said Act was made for the block period from 1.4.1985 till 6.1.1996. In those proceedings, the total income of the assessee for the said period was worked out in accordance with the provisions of Section 158BB of the Act and after giving credit for the amount disclosed, the assessment order was made as per Annexure "B" to the petition, calling upon the petitioner assessees to pay tax on the total undisclosed income for the block period, which included Assessment Year 1995-96. Admittedly, the said assessment orders passed under Chapter XIV-B of the Act against these petitioners have been challenged by them before the Income Tax Appellate Tribunal, Ahmedabad and those appeals are pending before the Tribunal. The case of these petitioners is that in view of the fact that the total income for the assessment year 1995-96 was already computed in the assessment orders for the block period, there was no question of now proceeding with the regular assessment for the assessment year 1995-96 and that the returns of income filed by them in respect of the assessment year 1995-96 were required to be filed. In any event, no addition could be made to the total income disclosed in the said returns in view of the block assessments made for the period which included the said assessment year 1995-96. According to the petitioners, they approached the respondent with a request to drop the proceedings on this ground, but the respondent is not inclined to do so and is proceeding ahead to make the regular assessments for the assessment year 1995-96. The petitioners' case is that any such proceedings would be wholly without jurisdiction. 3. In the affidavit-in-reply, the Revenue has contended that under the new scheme incorporated in Chapter XIV-B of the Act, the undisclosed income detected as a result of search was required to be assessed separately and the jurisdiction of the Assessing Officer during the course of the block assessment proceedings started as a result of search, was limited to the assessment of undisclosed income found as a result of search only. The Assessing Officer in such proceedings cannot review the additions made during the course of regular assessment proceedings. According to the Revenue, while computing the undisclosed income, the total income is to be computed on the basis of evidence found as a result of search or requisition of books of account or document and such other material or information as are available with the Assessing Officer. The proceedings under Chapter XIV-B was to run parallel to the regular assessment and any subsequent change in the assessed income in the regular assessment order because of rectification, re-assessment, revision, appeal, reference or order of Settlement Commission etc., does not disturb the figure of undisclosed income of the block period. According to the Revenue, there are no two assessments from the same year since the block assessment is for the undisclosed income for the block period and not for any specific year while the regular assessment is for the total income of the specific year. Reliance is placed in support of these contentions raised in the affidavit-in-reply, on the Budget speech of the Minister of Finance for 1995-96 (reported at 212 ITR 87), Notes on Clauses (reported at 212 ITR 306 [Statutes]) and CBDT Circular No. 717 dated 14.8.95, reported at 215 ITR p.33 [Statutes]) all of which are reproduced in the affidavit-in-reply. The Department has also contended that the assessees had taken up a ground before the Income Tax Appellate Tribunal in appeal filed against the order of block assessment that certain additions made therein were not covered under "undisclosed income" and that the disallowance could have been decided in the regular assessment proceedings of the assessment year 1995-96. 4. The learned Counsel appearing for the petitioners in this group of petitions strongly contended that the Assessing Officer had no jurisdiction to make any assessment order in respect of the returns of income filed by these petitioners in connection with the Assessment Year 1995-96 and that no notice could have been issued by him under Section 143(2) of the Act. It was contended that the powers under Section 143(2) are impliedly taken away by the provisions of Chapter XIV-B, which prescribed for a special procedure for assessment of search cases and under which the total income of the block period including that of the said assessment year 1995-96 was already worked out, leaving no scope for it being worked out again. It was argued that having determined the total income under Chapter XIV-B, the Assessing Officer was left with no jurisdiction to redetermine the same for the previous year included in the block period, because, doing so would tantamount to two assessments for the same year by working out two different figures of total income of the previous year, one reflected in the block assessment and the other in the regular assessment. It was contended that this could never have been intended by the legislature and the only way in which the total income of a previous year worked out in the block assessment could be changed, was by way of rectification proceedings. It is contended that if the Assessing Officer is permitted to determine total income of such previous year again in the regular assessment under Section 143(3), it would lead to double taxation in respect of the income found to be taxable in the block period assessment, because, under Section 143(3), the Assessing Officer shall call upon the assessee to pay tax on the basis of the total income that he determines, which would include the undisclosed income also. The Counsel further contended that this will bring about a situation where the tax will be required to be paid by the assessee on the same income and further that the assessee will be exposed to penal proceedings even in respect of that undisclosed income, despite the immunity contained in Chapter XIV-B. It was further argued that if it was felt that the computation of total income at the first stage under Section 158BB of the Act was incorrect, the only course open to the Revenue was to modify that block assessment and change the figure of total income. However, keeping that figure alive, there can not be redetermination of total income because for one assessee for the same assessment year, there could only be one figure of total income. The learned Counsel heavily relied upon the decision of Punjab and Haryana High Court in the case of Raja Ram Kulwant Rai Vs. Asstt.Commissioner of Income Tax, reported in 227 ITR 187 and the decision of the Kerala High Court in the case of N.T.John Vs. CIT, reported in 228 ITR 314, in support of his submissions. The learned Counsel repeatedly emphasised that in order to maintain uniformity, even if the Court found itself not in agreement with these decisions of the other High Courts, they ought to be followed. In support of this contention, he relied upon the decision of this Court in CIT Vs. Sarabhai Sons Ltd. reported in 143 ITR 473 and also on the decision of this Court in CIT Vs. Deepak Family Trust No.1 and anr., reported in 211 ITR 575. 5. The learned Counsel appearing for the Revenue argued that Chapter XIV-B of the said Act was devised to assess the undisclosed income and did not affect the regular assessments or the orders of the appellate or revisional Authorities or the changes made pursuant to the orders of the Court. It was contended that Section 158BB provided for computation of undisclosed income for the block period, and computation of aggregate total income of the previous years falling within that block period was the first step for the purpose of working out the undisclosed income by reducing that aggregate sum by aggregate of total income as disclosed. This according to him was not the same thing as assessment of the total income of the previous year under Section 143(3) of the Act. It was argued that the assessment under Chapter XIV-B of undisclosed income did not postulate assessing the total income of each year falling in the block period by again following the procedure of assessment as contemplated by Section 143(3) in respect of each such year. It was submitted that the later part of Section 158BB(1) and Clauses (a) to (f) indicated that the total income in the assessments made for the returns pending or the total income reflected from the settlement order under Section 245D(4) which order was final, were not to be disturbed. The learned Counsel submitted that the immunity from certain interest and penalties contemplated by Section 158BF was only in respect of the undisclosed income determined in the block assessment and had no bearing on the assessments otherwise made. It was also contended that only the specified penalties were not to be imposed and it is not as if there was immunity granted against the interest and penalties which could otherwise be levied or imposed under the other provisions of the Act, which are not mentioned in Section 158BF. 6. Chapter XIV-B lays down a special procedure for assessment of search cases and provides for assessment of undisclosed income as a result of search. The search is carried out under Section 132 of the Act. Such search and seizure can be authorised under that provision if in consequence of information in possession of the concerned authority, he has reason to believe that the books or documents are not, or would not be produced or any money, bullion, jewellery or other valuable article or thing which represents either wholly or partly income or property, has not been, or would not be disclosed for the purposes of the said Act. It may be noted that these assets referred to clause (c) of Section 132(1) were for the purpose of Section 132, described as `the undisclosed income or property'. The concept of `undisclosed income' as defined in clause (b) of Section 158B of the Act, is however, wider and different as we will later notice. Under Section 132, the officer authorised for conducting search and seizure is referred to as "the authorised Officer" and he can carry on search in any building, place, vessel or air-port where he has reason to suspect that the books of account or documents or the assets which the assessee will not or would not produce, are kept. In the process he can break open any lock and search any person. Under sub-clause (iii) of Section 132(1)(b), such authorised officer can seize any such books of account, other documents or the assets mentioned therein found as a result of such search. He can place marks of identification on the books of accounts or other documents and make note or inventory of such assets. Under sub-section (4) of Section 132, the authorised officer may, during the course of his search or seizure, examine on oath any person who is found to be in possession or control of any books of account, documents or other assets mentioned therein and any statement made by such person during such examination may thereafter be used in evidence in any proceedings under the Act. We have referred to the provisions of Section 132(1) to Section 132(4) in detail because the very basis of application of the special procedure for assessment of search cases under Chapter XIV-B is the search conducted under Section 132 or any requisition made under Section 132A. The provisions of Section 132(5), which enabled the Income Tax Officer to estimate the undisclosed income including the income from the undisclosed property as understood in clause (c) of Section 132(1), calculate the amount of tax on the income so estimated, determine the amount of interest payable and penalty imposable as per the Act, specify the amount required to satisfy any existing liability, and retain in his custody the assets or part thereof as are in his opinion sufficient to satisfy the aggregate of these amounts, are confined to cases where any money, bullion, jewellery or other valuable article or thing (referred to as "assets") is seized under sub-section (1) or sub-section (1)(a) of Section 132 as a result of search initiated or requisition made before the first day of July, 1995. In place of all that could be done under sub-section (5) of Section 132 of the Act when the seizure was prior to 1st July, 1995, a separate procedure is devised in Chapter XIV-B to deal with the cases where search is initiated or requisition made under Section 132 or 132A, after 30.6.1995. This procedure is for assessment of the `undisclosed income' as defined in Section 158B(b) of the Act. We may notice from the provisions of Section 132(9A) that where the Authorised Officer has no jurisdiction over the person referred to in clauses (a), (b) or (c) of sub-section (1) of Section 132, the books of account or other documents or assets seized under that sub-section shall be handed over by the authorised officer to the Income-Tax Officer having jurisdiction over such person. It will also be noticed from the provisions of Sections 120 and 124 of the Act, that there are provisions made for empowering the Assessing Officers in respect of the area and they have jurisdiction in respect of any person residing or carrying on business within that area. Thus, in cases where the search has initiated after 30th June, 1995 and the Authorised Officer who has conducted the search and seizure under Section 132(1) of the Act is not the Assessing Officer having jurisdiction over the person, he will be handing over the material to the Assessing Officer having jurisdiction in the matter as a result of the provisions of sub-section (9A) of Section 132 of the Act. 7. The definition of "undisclosed income" in Section 158B(b) 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 asset, entry, or other document or transaction representing wholly or partly income or property which has not been or would not have been disclosed for the purposes of the Act. It therefore, follows that what the assessee had already disclosed or would have disclosed is not to be treated as undisclosed income. 8. From the provisions of Section 158BA(1), it would appear that the Assessing Officer can proceed to assess the undisclosed income only if a search is initiated under Section 132 of the Act by the authorised officer. The total undisclosed income relating to the block period is to be charged to tax at the higher rate of 60% presently specified in Section 113 of the Act after such undisclosed income is assessed in accordance with the provisions of this Chapter by the assessing officer as income of the `block period' as defined in Section 158B(a) of the Act. This has to be done "irrespective of the previous year or years to which such income relates and irrespective of the fact whether regular assessment for any one or more of the relevant assessment years is pending or not" as provided in sub-section (2) of Section 158BA. This expression clearly indicates that the block assessment of undisclosed income and its being charged to a higher rate of tax prescribed, was independent of the pending regular assessments and it operated in a different field of the assessment of undisclosed income which was not and would not have been disclosed for the purposes of the Act. Undisclosed income, by this Chapter, is classified separately for the purposes of assessment and is required to be worked out in the manner prescribed therein and treated to a higher rate of tax. This process did not not disturb the assessments already made, of the previous years, and was only intended to sniff out what had remained hidden and would not have been disclosed by the assessee. There would therefore be no overlapping in the nature of the assessment made under this chapter of undisclosed income and the regular assessment made under Section 143(3) of the Act. If the pending regular assessment proceedings were to be frozen and got substituted by the assessment of the undisclosed income of the block period, the legislature would have been specific on that aspect and would have made it clear that the pending regular assessment proceedings should be dropped. The provisions of this chapter do not either expressly or by necessary implication even remotely indicate that the regular assessment proceedings of a previous year covered in the block period, were required to be stayed or dropped or substituted by the proceedings of this chapter. 9. Under sub-section (3) of Section 158BA, where the date of filing the return of income under Section 139(1) for any previous year has not expired, and the income of that previous year or the transactions relating to such income are duly recorded, then such income is not required to be included in the block period. This obviously means that the regular assessment of that previous year which has remained pending, will proceed notwithstanding that it was falling in the block period. Same would be the case where the block period includes only a part of the previous year of which the return is filed for regular assessment, and the regular assessment can proceed notwithstanding that the undisclosed income for a part of that previous year was within the block period. 10. There is yet another important indication to show that the assessment of undisclosed income is altogether a different matter from the regular assessments. Under Section 158BB of the Act, for computing the undisclosed income of the block period, the Assessing Officer has to compute the total income of the relevant previous years on the basis of the evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with the Assessing Officer. The evidence found as a result of search or requisition would be the evidence that has been gathered by the authorised officer under Section 132 and 132A of the Act. This would also include the statements recorded by the Authorised Officer during the course of search and seizure under Section 132(4) of the Act which empowers him to record statement of any person in possession of such assets or books of account or documents on oath and which can be used in evidence in any proceeding under the Act. The evidence so gathered by the authorised officer under Section 132 alongwith other material seized, marked, or inventoried, would be available before the Assessing Officer when he exercises his power to assess the undisclosed income under Chapter XIV-B of the Act. This evidence found and material available is to be the basis for computing the aggregate of the total income of the previous years falling in the block period. This exercise is undertaken as an initial step for computation of the undisclosed income under Section 158BB(1) for which the aggregate of the total income of the previous years falling within the block period is to be computed in accordance with Chapter IV of the Act, i.e. under various heads mentioned in that chapter, on the basis of the evidence found as a result of search and the material or information as are available with the assessing officer. For the purpose of working out the undisclosed income for the block period, he is then required to reduce the aggregate of the total income so worked out for the block period by aggregate of the total income determined, on the basis indicated in clauses (a) to (f) of Section 158BB(1) of the Act or increase it by the aggregate of losses of such previous year determined on the basis of these clauses. It would be important to note that for the purpose of determination of undisclosed income under sub-section (1) of Section 158BB(1), the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of Chapter IV without giving effect to set-off or brought forward losses under Chapter VI or unabsorbed depreciation under Section 32(2) of the Act, as provided by the explanation to Section 158BB(1) of the Act. It would thus, be clear that the total income of the previous year computed by the assessing officer in respect of the block period would not be the same total income which is assessed in respect of the previous years during the regular assessment proceedings. In the assessments in the regular assessment proceedings, there would be no scope for applying this explanation which lays down a special formula for working out the total income of the previous years falling in the block period for the purposes of determination of undisclosed income. Thus, computation of the aggregate of total income of the previous year falling in the block period is not the same thing as the assessment of total income of the previous year made under Section 143(3) of the Act. Under Section 158BB(1), read with Section 158B(c) of the Act, what is assessed is the undisclosed income of the block period and not the total income or loss of the previous year required to be assessed in the normal regular assessment under Section 143(3), where the assessing officer makes an enquiry to ensure that the assessee has not