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It has been held that where the legislature intended to exclude certain provisions from the ambit of Section 158 BC(b) it has done so specifically.  Thus, when Section 158 BC(b) specifically refers to applicability of the proviso thereto cannot be excluded. The Hon’ble Supreme Court also noticed that the clarification given by CBDT in its circular No.717 dated 14th August, 1995, has a binding effect on the  department, but not on the Court. This circular clarifies the requirement of law  in respect of service of notice under sub-section (2) of    Section 143 of  the  Act.  Accordingly,  The hon’ble Supreme Court concluded that even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the provisions of Section 158 BC, the provisions of Section 142 and sub-sections  (2) and (3) of Section 143 are applicable and no assessment could be made without issuing notice under Section 143(2) of the Act.

Section 158 B defines "undisclosed income", and "block period" which are the two basic factors for framing the block assessments. Section 158 BA is an enabling section, empowering  the assessing officer, to assess  "undisclosed  income"  as  a result of  search initiated or requisition made  after June 30,1995, in accordance with the provisions of this Chapter and tax   the   same  at the fixed rate specified in Section 113.

Section 158 BA is an enabling section, empowering  the assessing         officer, to assess  "undisclosed  income"  as  a result of  search initiated      or requisition made  after June 30,1995, in accordance with the provisions of this Chapter and tax   the   same  at the fixed rate specified in Section 113. Section 158 BB provides the methodology for computation of undisclosed income of the block period. Section 158 BC prescribes the procedure for making the Block assessment of the searched person. Section 158 BD enables assessment of any person, other than the searched person. Section 158 BE sets the time limits for completion of the Block assessments. Section 158 BF provides for immunity from levy of interest under Sections 234A, 234B and 234C and penalties under Section 271(1)(C), 271A and  271B.   Section 158   BFA provides for levy of interest and penalty in cases of search on or after January 1, 1997. Section 158 BG specifies the authorities competent to make the block assessment.  Section 158 BH provides for application of all the other provisions of this Act, except those as provided in Chapter XIV-B. Section  158    BI    provides   for    abolition   of    the  scheme in cases of search after 31.5.2003.

The scheme of Block assessment has been explained by Central Board of Direct Taxes in paragraph 39.3 of Circular No.717 dated 14th August, 1995 ([1995] 215 ITR.70).  The Hon’ble Supreme Court noticed that  clause (e) of the circular which provides for the procedure for making Block assessment. Omitting what is not necessary for the purpose of this case, clause (e) is extracted and it reads as under :-

"(e) Procedure for making block assessment: (i)  The Assessing Officer       shall serve a notice on such person requiring him to furnish within such time, not being less than 15 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 undisclosed income for the block period. The officer shall proceed to determine the undisclosed income of the block period and the provisions of section 142, sub-sections (2) and (3) of section 143 and section 144  shall apply accordingly."

Chapter XIV-B provides for an assessment of the undisclosed income unearthed as a result of search without affecting the regular assessment made or to be made.  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. The special procedure of Chapter XIV-B is intended to provide      a mode of assessment of undisclosed income, which has been detected as a result of search. It is not intended to be substitute for regular     assessment. Its scope and ambit is limited in that sense to materials unearthed during search.

It  is  in  addition  to  the 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 accounts or documents and such other materials or  information as are available with the assessing officer. Therefore,  the income assessable in Block assessment under Chapter XIV-B is the income not disclosed     but      found and determined as the result of search under  Section 132 or requisition under Section 132A of the Act.

Section 158 BC stipulates that the Chapter would have application where search has been effected under Section 132 or on requisition of books of accounts, other documents or assets under Section 132A. By making the notice issued under this Section mandatory, it makes such notice the very foundation for jurisdiction. Such notice under the Section is required to be served on the person     who is found to be having undisclosed income. The Section itself prescribes the time limit of 15 days for compliance. In respect of searches on or after 1.1.1997, the time limit may be given up to 45 days instead of 15 days for compliance.   Such  notice is prescribed under Rule 12(1A) which in turn prescribes Form 2B for block return.

Section 158 BC(b) is a procedural provision for making a regular assessment applicable to Block assessment as  well. Section 158      BC(c)  would require the assessing  officer to compute the income as      well as tax on completion of the proceedings to be made. Section 158 BC(d) would authorise the assessing officer to apply the assets seized in the same manner as are applied under Section 132B.

The Hon’ble Apex Court reverted back to Section 158 BC(b) which is the material provision which requires our consideration. Section 158 BC(b)      provides for enquiry and assessment. The said provision reads "that      the assessing officer shall proceed to determine the undisclosed         income  of the Block period in the manner laid down in Section 158 BB     and the provisions of Section 142, sub-section (2)  and (3) of Section 143, Section 144 and Section145 shall, so far as may be, apply."                        An analysis of this sub  section indicates that, after  the return is filed, this clause enables the assessing officer to complete the assessment by following the procedure like issue of notice under Sections 143(2)/142       and complete the assessment under Section 143(3). This Section does not provide for accepting the return as provided under Section 143(i)(a).       The assessing officer has to complete the assessment under Section 143(3) only.  In case of  default in not filing the return or not complying        with the  notice  under  Sections 143(2)/142, the assessing officer is authorized to complete the assessment ex-parte under     Section 144.     Clause (b) of Section 158 BC by referring to Section 143(2) and (3) would appear to imply that the    provisions of Section143(1) are excluded.

But Section 143(2) itself becomes necessary only where it becomes necessary to check the return, so that  where block return conforms to     the undisclosed income inferred by  the authorities, there is no reason, why the authorities should issue notice under Section 143(2).                         However, if an assessment is to be completed under Section 143(3)     read with  Section 158-BC, notice under Section 143(2) should be issued within one year from the date of filing of block return. Omission on the part of the assessing authority to issue notice under Section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under Section 143(2) cannot be     dispensed  with. The other important feature that requires to be noticed is that the Section 158 BC(b) specifically refers to some of the provisions of the Act which requires to be followed by the  assessing officer while completing the block   assessments  under  Chapter XIV-B of the    Act.          This legislation is by incorporation.  This Section even speaks of sub- sections which are to be followed by the assessing officer. Had the intention of the legislature was to exclude the provisions of Chapter XIV of the Act, the  legislature would have or could have indicated that also.               A reading of the provision would clearly indicate, in our opinion, if the assessing officer, if for any reason, repudiates the return filed by the assessee in response to notice under Section 158 BC(a), the assessing officer must necessarily issue notice under Section 143(2) of the Act  within the time prescribed in the proviso to Section 143(2) of the Act.      Where the legislature intended to exclude certain provisions from the ambit of Section 58 BC(b) it has done so specifically.  Thus, when Section       158 BC(b) specifically refers to applicability of the proviso thereto cannot be exclude. The Hon’ble Apex Court also noticed that the clarification given by CBDT in its circular No.717 dated 14th August, 1995, has a binding effect on the  department, but not on the Court. This circular clarifies the requirement of law  in respect of service of notice under sub-section (2) of    Section 143  of  the  Act.  Accordingly,   The Apex Court concluded that even for the purpose of Chapter XIV-B of the Act, for the determination of undisclosed income for a block period under the provisions of Section 158 BC, the provisions of Section 142 and sub-sections  (2) and (3) of Section143 are applicable and no assessment could be made without issuing notice under Section 143(2) of the Act.

However, it was contended by Sri Shekhar, learned counsel for the department that in view of the expression  "So far as  may  be" in Section 153 BC(b), the issue of notice is not mandatory but optional and are to be applied to the extent practicable.  In support of that contention, the learned counsel relied on the observation made by this Court in Dr. Pratap Singh's case [1985] 155 ITR 166(SC). 

The learned counsel for the respondent has brought to the hon’ble court notice that the observations made by this Court in the case of Maganlal  Vs. Jaiswal Industries, Neemach and Ors., [(1989) 4 SCC 344], wherein this Court while dealing with the scope and import of the expression "as far as practicable" has stated "without anything more the expression `as far as possible' will mean that the manner provided in the code for attachment or sale of property in execution of a decree shall be applicable in its entirety except such provision therein which may not be practicable to be applied."

In this case, the Court has observed that Section 37(2)    provides that "the provisions of the Code relating to searches, shall so far as may be, apply to searches directed under Section 37(2). Reading the two sections together it merely means that the methodology prescribed for carrying out the search provided in Section 165 has to be generally followed. The expression "so far as  may be" has  always  been construed to mean that those provisions may be generally followed to the extent possi

assessment of search case, chapter xiv-b, 158ba

Last updated 200 days ago by bpmundra