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Petitioner: SHAW WALLACE & CO. LTD. VS Respondent: ASSISTANT COMMISSIONER OF INCOME-TAX JUDGMENT
Court Name: Calcutta High Court Judge(s): Ajoy Nath Ray Title:SHAW WALLACE & CO. LTD. vs ASSISTANT COMMISSIONER OF INCOME-TAX
JUDGMENT
Reported As: 2001 PTD 55 Result: Order accordingly Judgment JUDGMENT The writ application in the instant case raises interesting points about the interaction between the special procedure for block assessment introduced by Chapter XIVB of the Income Tax Act, 1961, and the regular procedure for assessment. The new Chapter deals with cases where there has been a search or seizure (as here) or a requisition under section 132A. Broadly speaking, the provisions of the Chapter are that, once a search and seizure has been made, the assessee's total income shall be computed under Chapter XIVB for the past ten years, irrespective of whether re-opening notice has been served under section 148. This is referred to as block assessm ent. In the block assessment, the Assessing Officer is to take into account the materials obtained on search and seizure as well as all other materials which are in his possession, like, say, the returns 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 assessm ent 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
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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 the ten years opened up for block assessment, the regular assessment was outstanding in respect of two assessm ent years only, viz., 1994-95 and 1995-96, but we are concerned in the present writ with only one assessm ent year, viz., 1995-96. While the order for block assessm ent was subsisting, two notices were issued respectively under section 143(2) and section 142(1) of the Income Tax Act, respectively, dated December 19, 1997 and February 2, 1998. Pursuant to these notices, the Assessing Officer purported to proceed to make the regular assessm ent under the regular procedure. This writ application was filed challenging the power of the Assessing Officer to make regular assessm ents in respect of a financial year which formed the subject-matter of the block period of assessm ent. As the limitation for making the first assessment under section 153, for the assessment year 1995- 96 would expire two years after the end of that assessment year, viz., with the expiry of March 31, 1998, an interim order was passed in aid of this writ on March 5, 1998, which permitted the regular assessm ent to be made, keeping in view the facts with respect to limitation, but a direction was also passed that no demand would be enforced thereon except with the leave of Court. On the basis of the interim order, the assessment for the single year has been made; the writ petitioner assessee has also appealed therefrom departmentally to the Commissioner of Income- tax (Appeals), this appeal being an appeal in the regular manner and not an appeal directly made to the Tribunal from a block order. The arguments on both sides in this writ centered round the validity of the two notices under sections 142(1) and 143(2) in view of the search and seizure already made and the block assessm ents, being already underway. Both Mr. Bajoria, appearing for the assessee-writ petitioner, and Mr. Mullick, appearing for the Department, took me through the various provisions of Chapter XIVB as well as other sections regarding regular charging and regular assessment like sections 4 and 143. On the aspect of the bearing that a block assessment might have on regular assessment, three Indian cases are already on record. Learned counsel on both sides made submissions on those cases. The first in point of time is a decision of the Punjab and Haryana High Court given in the case of Raja Ram Kulwant Rai v. Asstt. CIT (1997) 227 ITR 187. It is a Division Bench decision which rules that block assessm ent and regular assessment operate in different fields and as such block assessm ent 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 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 assessm ent for the same assessm ent years. The report states as to the Punjab decision that their Lordships were not able to discern any reasons for the propositions laid down there (page 750). A similar remark was made in the same page as to the Kerala decision. The Gujarat High Court has, therefore, taken a view different from the other two High Courts and so far as persuasive authorities
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of different High Courts are concerned, I am left, because of equal pull on both sides, in the same position where I would be without all these decisions. I have to decide the matter afresh, therefore, and refer to the above decisions as and when called for. In giving the decision I might not mention the arguments of Mr. Bajoria and Mr. Mullick separately but mention only my decision, reached no doubt after hearing both of them and measuring the pros and cons and accepting the arguments of either of them. Chapter XIVB starts from section 158B and ends with section 158BH. Section 158 gives the block period of ten years, which is also the period which could at most be opened up if there were no search and seizure and no Chapter XIVB and the regular opening up procedure as under section 148 (including fraud of the assessee) were involved. This section also defines undisclosed income in an inclusive manner. Section 158BA is the non obstante section. This section directs that notwithstanding other provisions, the Assessing Officer shall proceed to assess undisclosed income as per the new Chapter XIVB. Subsection (2) of this section is the charging section mentioning section 113 and also the flat rate of 60 per cent. Section 158BA(2) has to be read with the ordinary charging section 4 which gives operation to different Finance Acts for different fmancial years. Subsection (2) clarifies that the rate shall be as per section 113 irrespective of the previous year. In my opinion, subsection (2) of section 158BA has to be interpreted in this manner that whatever the Finance Act the undisclosed income as assessed under Chapter XIVB must be taxed at the rate mentioned in section 113 notwithstanding the different rates for the different years. There is three-clause Explanation added to section 158BA. That has come into operation from July 1, 1995, by reason of retrospective effect given, when introducing it by the Finance (No.2) Act, 1998. The Department has made a miscellaneous application before the Tribunal on the basis of this Explanation requesting the Tribunal to set aside or modify its order, dated April 2, 1998. 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 set out below: "Explanation.---For the removal of doubts, it is hereby declared that--- (a) the assessm ent 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 assessm ent 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 Explanations (b) and (c) that the Assessing Officer shall not include the block amount of income in the regular assessm ent 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 materials, probably obtained on search and seizure, and materials which probably indicate that the income as returned by the assessee should have been much more, yet the Assessing Officer is forbidden to make a regular assessment on the basis of the larger income, if that larger income is to be included in the block assessment. The result is that the Assessing Officer computes an income for a particular assessment year and yet is compelled to leave out undisclosed income, by reason of the provisions contained in the Income-tax Act itself, altogether from the purview of the regular assessment on the computation for that assessment year.
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Their Lordships of the Gujarat High Court in N.R. Paper's case (1998) 234 ITR 733, have mentioned at the bottom, page 747 of the 'above report as follows: "The special provisions (of Chapter XIVB) are devised to operate in the separate field of undisclosed income and are clearly in addition to the regular assessments covering the previous years falling in the block period." With the greatest respect, this observation has to be read alongwith the statutory Explanations (b) and (c). Regular assessm ent and block assessment operate in different fields altogether, from one point of view, but, then again they operate in the same field when one bears in mind that the block assessm ent and the regular assessm ents relate to the same assessment years in respect of the income of one and the same assessee. No doubt assessment of regular income in the regular manner can be made, subject to the limitations and constraints which I shall hereby indicate, but such regular assessm ent is totally different in the case of block assessees than it is in the case of a normal and ordinary assessee who has not been subjected to search and seizure or a section 132A order. It is important to mention here section 158BB which deals with computation of undisclosed income for the block period. The first subsection of the said section alongwith Explanation (a) is set out below: "158BB. Computation of undisclosed income of the block period.--- (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, 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 assessm ents under section 143 or section 144 or section 147 have been concluded, on the basis of such assessm ent; (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 subsection (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 subsection (4) of section 245D, on the basis of such order; (0 where an assessm ent of undisclosed income had been made earlier under clause (c) of section 158BC, on the basis of the such assessment. Explanation.---For the purposes of determination of undisclosed income,--- (a) 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 of brought forward losses under Chapter VI or unabsorbed depreciation under subsection (2) of section 32." When one is considering the interaction between block assessment and regular assessment one has to read this section alongwith the most important subsection (for our purposes) in the regular assessm ent Chapter and that is section 143(3). It is quoted below:
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"(3) On the day specified in the notice under subsection (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment." It will be found from section 158BB that the Assessing Officer is to compute total income twice. I emphasise the combination of words "total income". The first computation of total income under section 158BB is on an aggregate of materials including returns. The second computation of total income is as per direction and definition given in section 158BB irrespective of whatever might be contained in the other provisions of the Income- tax Act. That such computation of the second total income is to be made irrespective of other provisions is seen from the words of section 158BA, which states that the Assessing Officer must proceed to assess the undisclosed income as per section 158BB notwithstanding any other provision contained in the Act. Once the two total incomes under section 158BB are computed, no further scope remains for the Assessing Officer to make any further computation for the concerned assessment year either for the purpose of imposition of tax on the undisclosed income or for the purpose of making the regular assessm ent under section 143(3). Since 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 assessm ent 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 Lorships 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 assessm ent. 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 cf Chapter XIVB. In the Gujarat High Court their Lordships have opined that in the regular assessment the Income- tax Officer might have additional materials and thus, in cases where returns were filed but assessm ents were not completed prior to the date of search and seizure, for those assessment years, notwithstanding block assessm ent, the Assessing Officer would again scrutinise the returned income and make a regular assessm ent on that, as per section 143(3). Let us see the implication of this view. Suppose the returned income for one assessment year is Rs.120; suppose in the block assessm ent the total income for that year being the first total income computation under section 158BB is found to be Rs.190, then seventy rupees gets taxed as undisclosed income at 60 per cent. According to the Gujarat view, after this process has been completed for the concerned assessm ent years included in the block period section 143(3) assessments could even then be normally made. Suppose it is so made; suppose on that basis the returned income of Rs.120 is found to go up to Rs.130. These ten rupees, let us say, are the result of further materials, labours and scrutiny put in by the Assessing Officer at the stage of regular assessment. Let us suppose these are also partly due
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to section 142 and section 143 notices issued by the Assessing Officer in the regular assessment procedure. The point to note, and note well, is that the powers available under section 142 and section 143(2) are also made available to the Assessing Officer while computing total income for the block period under Chapter XIVB. This is clearly provided for in clause (b) of section 158C. The Assessing Officer for the block assessm ent is the same as the Assessing Officer for the assessment years for regular assessm ent. Had the Assessing Officer taken the same pains for the block assessment which he took subsequently for regular assessment, then and in that event the additional income of Rs.10 would have been revealed during the block assessment. Had it been so revealed the said Rs.10 would go to increase the block assessment from Rs.190 to Rs.200. This sum of Rs.10 would then be taxed at 60 per cent., but if the Gujarat view is to be accepted in toto, the Assessing Officer would be free to tax this additional Rs.20 in the regular assessment by applying the Finance Act applicable to that assessm ent year. In my opinion and with all due respect, this simply cannot be. Why I say so is as follows. The Assessing Officer is cast with a duty to 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 assessm ent so that 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 subsection (1) of section 158BB gets taxed as undisclosed income. The regular assesment 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 sudh computation concluded in the block period. To be more explicit, when the block assessment is over, the Assessing Officer has finished all jobs up to the words "...An assessm ent of the total income or loss of the assessee", which are contained in section 143(3), and all that will remain for him is to do the rest as provided for in section 143(3), viz., "and determine the sum payable by the (assessee) .... On the basis of such assessment (i.e., computation)". What will be the total income fof section 143(3)? The answer is clear -and unequivocal and there can be no doubt about it. For block assessees, the total income for section 143(3) must be the second total income of section 158BB, when returns have been filed prior to the date of search and seizure; the total income for section 143(3), i.e., for regular assessment for that assessment year must be on the basis of the return filed under section 139 and on no other basis whatsoever. Even if that return is to be adjusted for arithmetical errors or matters beyond doubt and dispute, even this adjustment has to be made during the block assessment when computing the second total income under section. 158BB. That computation of the second total income binds the Assessing Officer for making the assessm ent of tax in regular assessment under section 143(3) and the Assessing Officer has no jurisdiction to arrive at one computation of the second total income under section 158BB, at least in so far as clause (b) of subsection (1) of section 158B is concerned, and arrive at a different computation of total income for the purpose of section 143(3). Now we come to an even more stark result of allowing regular assessment to proceed unhindered by Chapter XIVB, as appears to be the general view of the Gujarat High Court.
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If we take the above example of returned income of being Rs.120, the block income being determined at Rs.190 and the regular assessment increment being Rs.10, making Rs.120 into Rs.130, let us consider what will happen if the addition of Rs.10 is made also during the block assessment, because of regular increases made as unrelated to search and seizure, in addition to the increase of Rs.70 made because of search and seizure. This sum of Rs.10 will get included twice and will get taxed twice. In the block assessment the undisclosed income will be Rs.190 plus Rs.10 minus Rs.120. The extra 80 rupees will get taxed at 60 per cent. Even in the, regular 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 assessm ent 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 assessm ent 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 assessm ent, but no express provision in this respect could be found out. On the other hand, Explanations (b) and (c) to section 158BA indicate that there should be a strict division of income between the undisclosed and the non-undisclosed part so that the possibility of double taxation should not arise at all. If a taxing officer is giving credit for tax already assessed or paid for the block period in the tax which is being regularly assessed, then it must follow that the same income has been taxed both in the block period and in the regular assessment. This is forbidden by the two Explanations. With respect, the above paragraph of the Gujarat High Court has to be read in the light of the two Explanations which are statutory and binding on the Assessing Officers all over India. Secondly, if the Assessing Officer is to give credit for block assessment tax during the regular assessm ent then it presupposes that the block assessment has to be made prior to the regular assessm ent. This is another important issue. Mr. Mullick submitted that there are no express words contained in Chapter XIVB and none specially in sections 158BA and 158BB…
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