CONDITION PRECEDENT TO INVOKE A BLOCK ASSESSMENT

[Mr. M. GOVINDARAJAN]

 Section 158B (a) defines the term ‘block period’ as the period comprising previous years relevant to six assessment years preceding the previous year in which the search was conducted under section 132 or any requisition was made under section 132A and also includes the period up to the date of the commencement of such search or date of such requisition in the previous year in which the said search was conducted or requisition was made.

Section 158B (b) of the Act defines the terms ‘undisclosed income’ that 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, or any expense, deduction or allowance claimed under this Act which is found to be false.

Section 158BC deals with the procedure for block assessment.  Where any search has been conducted under section 132 or books of account, other documents or assets are requisitioned under section 132A, in the case of any person, then,—

(a) the Assessing Officer shall—

(i) in respect of search initiated or books of account or other documents or any assets requisitioned after the 30th day of June, 1995, but before the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days;

(ii) in respect of search initiated or books of account or other documents or any assets requisitioned on or after the 1st day of January, 1997, serve a notice to such person requiring him to furnish within such time not being less than fifteen days but not more than forty-five days,as may be specified in the notice a return in the prescribed form and verified in the same manner as a return under clause (i) of sub-section (1) of section 142, setting forth his total income including the undisclosed income for the block period :

No notice under section 148 is required to be issued for the purpose of proceeding under this Chapter. A person who has furnished a return under this clause shall not be entitled to file a revised return;

(b) the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in section 158BB and the provisions of section 142, sub-sections (2) and (3) of section 143, section 144 and section 145] shall, so far as may be, apply;

(c) the Assessing Officer, on determination of the undisclosed income of the block period in accordance with this Chapter, shall pass an order of assessment and determine the tax payable by him on the basis of such assessment;

(d) the assets seized under section 132 or requisitioned under section 132A shall be dealt with in accordance with the provisions of section 132B.

Section 158BD of the Act deals with the undisclosed income of any other person. The said section provides that where the Assessing Officer is satisfied that any undisclosed income belongs to any person, other than the person with respect to whom search was made under section 132 or whose books of account or other documents or any assets were requisitioned under section 132A, then, the books of account, other documents or assets seized or requisitioned shall be handed over to the Assessing Officer having jurisdiction over such other person and that Assessing Officer shall proceed under section 158BC against such other person and the provisions of this Chapter shall apply accordingly. 

It is clear that the condition precedent for invoking a block assessment is a search conducted under Section 132 of documents or assets requisitioned under Section 132A. It permits the application of Chapter XIV-B only on the satisfaction of the Assessing Officer that the seized documents show undisclosed income of a person other than the person with respect to whom search was conducted or a requisition was made.  In ‘Manish Maheswari V. Assistant Commissioner of Income Tax’ – (2007 (2) TMI 148 - SUPREME COURT OF INDIA the court summarized the prerequisites of Section 158BD of the Act as follows:

•  Satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 of the Act;
•  The books of account or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction over such other person; and
• The Assessing Officer has proceeded under Section 158BC against such other person.

In ‘Assistant Commissioner of Income Tax V. Hotel Blue Moon’ – 2010 (2) TMI 1 - SUPREME COURT OF INDIA it was held that a search is the sine qua non for the block assessment. The special provisions are devised to operate in the distinct field of undisclosed income and are clearly in addition to the regular assessments covering the previous years falling in the block period, intended to provide a mode of assessment of undisclosed income, which has been deterred as a result of search.

In ‘Assistant Commissioner of Income Tax V. A.R. Enterprises’ – 2013 (1) TMI 345 - SUPREME COURT the respondent assessee contended that the Revenue did not have jurisdiction to invoke block assessment against the assessee. It was further contended that before initiating proceedings, the Assessing Officer had not recorded his satisfaction that any undisclosed income belonged to the assessee or that the assessee did not have the intention to disclose their income. Hence he prayed that the block assessment against him should be quashed. The Supreme Court rejected the contention since the same was never urged before the Tribunal and the High Court. 

Thus when block assessment is initiated without recording the satisfaction by the Authority the assessee has to raise his objection in this regard.