TMI Blog1999 (2) TMI 50X X X X Extracts X X X X X X X X Extracts X X X X ..... s already filed by the assessee. After computation of the block period income, the Assessing Officer should deduct therefrom the income already regularly assessed or the income returned and then arrive at the figure for assessment of the tax payable on undisclosed income, if any. Under section 113, the undisclosed income is charged to tax at 60 per cent. irrespective of what rates or slabs the Finance Act of the corresponding opened up block years had provided at the material time. The above is a very rough and ready overall view of Chapter XIVB. It is necessary to have this overall view to see the facts of this case in the light of that Chapter. The search and seizure in the instant case took place between August and November, 1996. The block period, therefore, became the 1985-96, ten years period. The block assessment for this period was made by order dated November 28, 1997. Since the block assessment is appealable directly to the Tribunal, and to the Tribunal alone, the assessee went up there. By an order passed on the April 2, 1998, the Tribunal has in effect set aside the order of block assessment and remanded the matter for fresh assessment for the block period. Out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Asst. CIT [1997] 227 ITR 187. It is a Division Bench decision which rules that block assessment and regular assessment operate in different fields and as such block assessment would rule out the possibility of individual assessments for the assessment years included in the block period. To the same effect is the decision of a learned judge of the Kerala High Court given in the case of N. T. John v. CIT [1997] 228 ITR 314. The Kerala case directed as an interim measure that, in view of the operation of Chapter XIVB, the assessment order completed for the year 1993-94 would be kept in abeyance. A somewhat similar interim order was passed in our case also. The Kerala High Court decision has now been taken in appeal before a Division Bench, as S. L. P. has been admitted as from the Punjab and Haryana decision. The other decision of the Gujarat High Court given in the case of N. R. Paper and Board Ltd. v. Deputy CIT [1998] 234 ITR 733, decides on the other hand that the block assessment does not rule out the possibility of a regular assessment for the same assessment years. The report states as to the Punjab decision that their Lordships were not able to discern any reasons for the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Department's application before the Tribunal under section 256(1) has also been filed in respect of the same order. Thus the Explanation which is the very basis of the Department's miscellaneous application is set out below : "Explanation.-For the removal of doubts, it is hereby declared that- (a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period ; (b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period ; (c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period." The effect of the Explanation is far reaching without going into anything more, it is immediately seen from Explanation (b) and (c) that the Assessing Officer shall not include the block amount of income in the regular assessment and vice versa. Anything like this was unknown prior to the introduction of Chapter XIVB. When the Assessing Officer makes the regular assessment, although he will have in his possession at that time materi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r materials or information as are available with the Assessing Officer, as reduced by the aggregate of the total income, or, as the case may be, as increased by the aggregate of the losses of such previous years, determined,- (a) where assessments under section 145 or section 144 or section 147 have been concluded, on the basis of such assessments ; (b) where returns of income have been filed under section 139 or section 147 but assessments have not been made till the date of search or requisition, on the basis of the income disclosed in such returns ; (c) where the due date for filing a return of income has expired but no return of income has been filed, as nil ; (d) where the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years ; (e) where any order of settlement has been made under sub-section (4) of section 245D, on the basis of such order ; (f) where an assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e this is the crux of the matter it requires further elucidation. Arguments were made before the Gujarat High Court, and there are observations in their Lordships' judgment which seem to indicate that the court was asked to consider the proposition, that the block assessment freezes regular assessment for all purposes. The arguments made seem to go so far as to suggest that if there is block assessment there shall be no regular assessment for the years included in the block period. Their Lordships of the Gujarat High Court have categorically negatived this tall claim. With respect I agree with this part of the Gujarat judgment in that it is my opinion also that the assessment for each of the years included in the block period shall also be the subject-matter of regular assessment. This is no more than giving effect to Explanation (a) to section 158BA which I have quoted in the beginning. But points arise as to in what manner the regular assessment for each of the previous years will be affected by reason of the provisions of Chapter XIVB. In the Gujarat High Court their Lordships have opined that in the regular assessment the Income-tax Officer might have additional materia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make block assessment and use all his available jurisdiction and power in that regard. This includes the powers of sections 142 and 143 for getting information. The Assessing Officer is not permitted to use part of his powers for block assessment and reserve the balance for making regular assessment thereafter. He must use all his powers during the block assessment so that the computation is complete once for all and each rupee of total income which is in excess of the contingencies provided for in (a) to (f) to sub-section (1) of section 158BB gets taxed as undisclosed income. The regular assessment relates only to the residuary duty of regular assessment which still vests in the Assessing Officer after completion of the block assessment. If block assessment is completed appropriately, in the manner indicated above, then and in that event, by the time such process is over the Assessing Officer will have concluded all his jobs leading up to and included in section 143(3) which relate to computation, and all that will remain will be determination of the sum payable by the assessee on regular assessment on the basis of such computation concluded in the block period. To be more e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r assessment the income of Rs. 130 as computed will get taxed at the Finance Act percentage, say 30 per cent. In the result the increase of 10 rupees will get taxed once at 60 per cent. and once again at 30 per cent. This is not permissible and even their Lordships of the Gujarat High Court have opined to the effect that double taxation is not the result of their decision. At page 745 of 234 ITR, their Lordships have opined thus : "The anxiety voiced on behalf of the petitioners that there would be double taxation if the pending regular assessment is allowed to proceed, is baseless. The assessed undisclosed income is taxed at the higher rate of 60 per cent. under section 113 and in respect of such assessed undisclosed income, there can arise no question of paying the tax again in a regular assessment. All taxes paid by the assessee are required to be taken into account and adjustments given in a regular assessment and there would be no scope in such regular assessment for the assessment of his undisclosed income already assessed in the block assessment." The view is that all tax as per block assessment will be given due credit for by the Assessing Officer in the regular asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent. and would have collected for the revenue Rs. 48. This he cannot do because of the Explanations and because, he has already completed an assessment of an unassessed return which was unassessed at the date of such search and seizure. Mr. Mullick continuously emphasised the necessity of reading the taxing statute exactly as it has been made by Parliament. He gave me a decision of the Bombay High Court in New Shorrock Spg. and Mfg. Co. Ltd. v. Raval (N. V.) [1959] 37 ITR 41. He also drew my attention to a dictum of Mr. Justice Rowlatt reproduced at page 45 of the said report. Mr. Mullick submitted on this basis that whatever the result, if clear words in a fiscal statute indicate that to be so, the court should not hesitate to construe the plain words in the plain way even if those results, appear to be undesirable from some point of view. It is not possible to permit the Assessing Officer to have free play as regards completion of filed returns in regard to the assessment years included in the block period. If he proceeds in one way one result is reached. If he proceeds in another way another result is reached. If he proceeds to make complete regular assessment by taking into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 96, the limitation for the block assessment would be only in November, 1998. The block assessment limitation would, therefore, be at a period of time some eight months later than the latest period of assessment for the regular assessment. According to Mr. Mullick, this was a pointer, and a strong pointer that the block assessment should not in any manner hold up the regular assessment, the time period for finalising which might be first running out, even sooner than the block limitation. We are concerned with the situation of an unassessed return at the date of search, which is the situation of clause (b) of sub-section (1) of section 155BB. One would have to bear in mind that when the Assessing Officer is making the block assessment the second total income of section 158BB shall always be on the basis of the returns filed if that has not already been assessed. The Assessing Officer, cannot assess that return in any other manner, than, on the basis of the return itself under section 158BB ; again prior to making of block assessment, regular assessment is ruled out because of the reasons given above, mainly because the Assessing Officer cannot erase out the effect of Chapter XIVB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made thereafter under the regular procedure, the Income-tax Officer would have imposed tax on the escaped income at the rate applicable for the concerned financial year ; he would also have levied interest, and if this interest is calculated for nearly ten years, it is likely that the interest would exceed tile amount of tax payable. I am leaving aside penalties for the time being. If, however, the identical thing happens in the block assessment, that sum of Rs. 1 lakh which will be determined as undisclosed income for the concerned assessment year included in the block period would attract taxation at the rate of 60 per cent. only. The levy at the rate of 60 per cent. is specifically mentioned as tax under section 158BA, sub-section (2). The levy of interest in the case of block assessment could not be made at all- It is possible that under the Chapter XIVB procedure the defaulting assessee would be a gainer in that 60 per cent. of Rs. 1 lakh might be less than the taxation at the rate of the Finance Act applicable on Rs, 1 lakh plus interest thereon. However, the matter is usually not so simple. Not all search and seizure will reveal such simple things as undisclosed bank ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he returns filed but not assessed are to bo assessed in regular assessment on the basis of the returns alone, exactly like an ex parte assessment, with, may be, correction of arithmetical errors or adjustments about which there are no doubts or disputes like the ones contemplated in section 143(1), The next phase is penalties. Under the regular procedure penalty could be levied from 100 per cent. to 300 per cent. of the tax which is additionally levied. One might refer to section 271 of the Income-tax Act in this regard. However, if the block assessment precedes the regular assessment income will not be found to be in excess of the return made by the asses-see at the stage of the regular assessment. In that event penalty under section 271 will not be leviable. This is quite a serious matter. It was even more serious before the introduction of section 1S8BFA. Prior to the introduction of that section, the block assessee would pay only 60 per cent. on the undisclosed income as per the block assessment and would not pay any penally at all. He would, therefore, pay no penalty and no interest. He would only pay 60 per cent. of the undisclosed income and that would be all. Indeed a b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utions that may be associated with the orders of regular assessment cannot be pre-empted by a specious suggestion made on behalf of the petitioners that the pending regular assessments are to be omitted if that previous year happens to fall in the block period for assessment of undisclosed income." Their Lordships have mentioned several sections which might invite penal consequences for default and these include also defaults like nonpayment of advance tax, etc. These sections were also considered by me and it appears to me that the precedence given in this judgment to block assessment over regular assessment can in no manner touch these outside penalty sections, if I might so term those. If the return for an assessment year included in the block period has been filed without payment of advance tax (or better, with insufficient payment of advance tax) then and in that event the assessment of undisclosed income does not relieve the assessee of the consequences of such default in payment of full advance tax. Why ? Because in section 158BB, computation of the second total income, the Assessing Officer will surely take the return and will knock off the disclosed total income. It do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he second total income under section 158BB even then to be taken as nil ? I do not advisedly answer these questions as, in my opinion, Mr. Mullick rightly pointed out that I am not to answer general points arising out of the Income-tax Act but only answer specific issues, which arise in this case. In the result, it appears to me that both the notices issued by the Income-tax Officer under section 142 and section 143(2) are bad in law. Those notices should not have been issued in regard to the regular assessment. But if needed those powers could and should have been used for block assessment as permitted under section 158BC(b). The block assessment (now being remanded by the Tribunal) would have to be completed. But that is not the core subject-matter of the present writ. I have opined that in a situation like this the Assessing Officer might, to save limitation even before the block assessment make the regular assessment for the unassessed return as a special and exceptional case as the identical thing would have to be made, in any event, after the block assessment. But that is not the direction that I propose to pass on the Assessing Officer in the instant case. What those d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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