TMI Blog2003 (1) TMI 639X X X X Extracts X X X X X X X X Extracts X X X X ..... led her returns of income for the block period in Form No. 2B on 15th Nov., 1996, admitting undisclosed income for the block period at nil . She contended having not filed her returns of income for some of the years, as no return was needed to be filed, since the income for these years was below the taxable limit. The assessee filed her regular return of income for assessment year 1989-90. She did not file her subsequent returns of income till the date of search, id est , 14th Nov., 1995. After the search, the assessee filed her returns of income for assessment years 1994-95 and 1995-96. She did not file her returns of income for assessment years 1986-87 to 1988-89 and 1990-91 to 1993-94. The learned Assessing Officer observed that in view of the provisions of Chapter XIV of the Act, if the assessee has not filed the return of income till the date of search, the income should be treated as nil ; that this is clear from the provisions of section 158BB( c ); and that in the assessee s case, whether she has failed to file the return of income either due to the fact of the income being below the taxable limit, or due to some omission, the income is to be considered as nil . The Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aim of the assessee, refers to p. 2 of the assessment order, to say that there has been a seizure in this case. Once a warrant is issued, section 143(2) ceases to operate and the Assessing Officer can proceed to make the assessment as a block assessment. The procedure is mandatory. As on the date of search, if any income is not disclosed till the search proper is carried out, that income is nothing but undisclosed income. Proceeding under section 158BC is the only course left available to the Assessing Officer for the entire block period. 7. In his rejoinder, besides referring to his earlier assertions, the learned authorised representative avers that what cannot be done directly, must not be allowed to be done indirectly. 8. The claim of the assessee is that since no incriminating material was found against her during the course of the search, the Assessing Officer should have stayed his hand short of embarking upon making block assessment. Rather, he ought to have conducted regular assessment. Is this plea tenable and in accordance with law ? Let us see ! 9. Let us first of all consider the applicable provisions of block assessment. 10. Chapter XIV-B of the IT Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t expired, and such income or the transactions relating to such income are recorded on or before the date of the search in the books of account or other documents maintained in the normal course relating to such previous years, such income shall not be included in the block period. 16. The manner of computation of undisclosed income of the block period has been prescribed under section 158BB of the Act. According to sub-section (1) of this section, the undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of this Act, on the basis of evidence found as a result of search and such other materials or information as are available with the Assessing Officer and relatable to such evidence, as reduced by the aggregate of the losses of such previous years, determined : where returns of income have been filed under section 139 or in response to a notice issued under section 142(1) or section 148, but assessments have not been made till the date of search, on the basis of the income disclosed in such returns [section 158BB(1)( b )]; where the due date for fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ases, the assessment has to be done only and only in accordance with the provisions contained in this chapter, as is crystal clear from the non obstante clause comprising section 158BA(1). 19. Block assessment must be based on seized/found assets or evidence. That is why in Form 2B, as applicable before its substitution by the IT (Fifteenth Amendment) Rules, 2001, unlike in other returns, the assessee is called upon to give details in Part I, Col. 12, of the value of cash, jewellery and other valuables found/seized as on the date of search. Therefore, the stress is on and the importance is of assets or income found as a result of search . In the case of block assessment, though the search is the basis for assessment of the undisclosed income, the proceedings do not commence automatically after the search is completed. They would start only on issuance of notice under section 158BC, for which, the Assessing Officer must be satisfied that undisclosed income within the meaning of section 158B( b ) was found in assets/documents/books of account found during the search and such undisclosed income is that of the person searched or the person mentioned in section 158BD. Once there i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , such exclusion can only be affected only if there are materials found in search to show that such claims are false. 22. The computation of undisclosed income of the block period is to be done on the basis of evidence found as a result of search and other materials or information available with the Assessing Officer and relatable to such evidence. This is as provided under the amended provisions of section 158BB(1) such amendment having been made applicable retrospectively w.e.f. 1st July, 1995, by the Finance Act, 2002. Before the said amendment, section 158BB(1) read : "158BB(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed, in accordance with the provisions of Chapter IV, on the basis of 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 ." [Emphasis supplied] 23. By virtue of the said amendment, inter alia , the words "and relatable to such evidence" have been added in the section after and in conjunction with the words "and such other materials ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to such evidence" has been added, so that "other materials or information" be related to evidence found as a result of search. The amended law, therefore, recognises that post search enquiries unrelated to evidence obtained as result of search cannot be the basis for block assessment. The methodology to compute the undisclosed income, as prescribed in section 158BB, makes the position of law clear that what is not relatable to evidence found as a result of search will not be includible in computation. In P.K. Ganeshwar v. Dy. CIT [2002] 80 ITD 429 (Chennai), the Tribunal has held that the additions came to be made not as a result of search, but because of investigations carried out after the search and that though it was undisclosed income, it could not be included in computation of undisclosed income for block assessment. 25. Reverting to the dispute before us, it is the self-avowed case of the Department that the jewellery, cash and silver articles seized during the search were considered in the hands of the husband of the assessee while completing his block assessment. It also finds mention in the assessment order in IT(S S)A 99/Mum./1996, that the entire investment an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ravi Kant Jain ( supra ) (cited by the assessee), has held: "Block assessment under Chapter XIV-B of the IT Act, 1961, is not intended to be a substitute for regular assessment. Its scope and ambit is limited in that sense to materials found during search. It is in addition to regular assessment already done or to be done. The assessment for the block period can only be done on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials and information as are available with the Assessing Officer. Evidence fund as a result of search is clearly relatable to sections 132 and 132A." 29. The Mumbai Bench of the Tribunal has held, in the case of Sunder Agencies ( supra ) (quoted on behalf of the assesee), that "it is abundantly clear from a perusal of the prescription in section 158B( b ) that even under the pale of Chapter XIV-B, assessment could be made only in respect of undisclosed income. Such undisclosed income must come as a result of search." 30. In Vidya Madanlal Malani s case ( supra ) (referred to on behalf of the assessee), it was held that in block assessment in search cases, where the income d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such powers would follow alongside of this special assessment procedure devised for dealing with the undisclosed income as a result of search. 34. The Hon ble Rajasthan High Court, in the case of CIT v. Rajendra Prasad Gupta [2001] 248 ITR 350 1 has held as under: "The return is to be adjudicated with reference, to material obtained during search proceedings. The Assessing Officer is not conferred with power to make estimate of income de hors material in his possession." 35. In the case of Pooja Bhatt v. Asstt. CIT [2000] 73 ITD 205 (Mum.), again, the Mumbai Bench of the Tribunal observed that: "The assessment procedure provided under section 158BA authorises assessment of undisclosed income as a result of search." 36. The Ahmedabad Bench of the Tribunal, in the case of Pradip C. Patel v. Dy. CIT [1997] 58 TTJ (Ahd.) 409, also endorses the view of the Mumbai Bench of the Tribunal in Sunder Agencies s case ( supra ). 37. The Hon ble jurisdictional High Court in CIT v. Vinod Danchand Ghodawat [2001] 247 ITR 448 2 (Bom.), has expressed a view similar to the one held by the Hon ble Delhi High Court in Ravi Kant Jain s case ( supra ), that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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