Sca/4387/1999 Of Shivchand Mathurdas Gupta v. Joint Commissioner Of Income Tax Special Range 2

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 6215 of 1999With SPECIAL CIVIL APPLICATION No. 4380 of 1999With SPECIAL CIVIL APPLICATION No. 4387 of 1999With SPECIAL CIVIL APPLICATION No. 919 of 2000 For Approval and Signature: HONOURABLE MR.JUSTICE D.A.MEHTA Sd/- HONOURABLE MR.JUSTICE H.B.ANTANI Sd/- ========================================================= 1[Whether Reporters of Local Papers may be allowed ]to see the judgment ? YESto see the judgment ? YES 2To be referred to the Reporter or not ? YES 3[Whether their Lordships wish to see the fair copy ]of the judgment ? NOof the judgment ? NO Whether this case involves a substantial question of law as to the interpretation of the of law as to the interpretation of the 4constitution of India, 1950 or any order made thereunder ? NOconstitution of India, 1950 or any order made thereunder ? NO 5[Whether it is to be circulated to the civil judge ]? NO? NO ========================================================= CARGO CLEARING AGENCY (GUJARAT) - Petitioner(s)Versus JOINT COMMISSIONER OF INCOME TAX - Respondent(s) ========================================================= Appearance : MR SN SOPARKAR AND MR KH KAJI for Petitioner(s) : 1,MR MANISH R BHATT for Respondent(s) : 1, ========================================================= : SYNOPSIS : CORAM :[HONOURABLE MR.JUSTICE D.A.MEHTA] andHONOURABLE MR.JUSTICE H.B.ANTANIDate : 08/08/2008 CAV JUDGMENT(Per : HONOURABLE MR.JUSTICE D.A.MEHTA) 1.All these petitions have been heard together as it is an accepted position that the issue involved is common. Special Civil Application No. 6215 of 1999 has been taken as the lead matter and accordingly detailed facts are taken from the said petition. 2.The petitioner was a Firm comprised of four partners. The Firm continued business up to 31.03.1992 i.e. the day on which the Firm was dissolved. In the subsequent period, viz. previous year relevant to Assessment Year 1993-94 certain transactions were carried out and hence, a return of income in the status of Association of Persons (AOP) declaring income of Rs.5,05,087/- came to be filed. 3.On 24.11.1995 search proceedings u/s. 132 of the Income Tax Act, 1961 (the Act) were carried out at the residential premises of three erstwhile partners of the petitioner Firm. Certain loose papers were found from the residence of one of the partners Mr. T.V.Sujan. The said documents were seized and statement of Mr.Sujan was recorded. An order u/s.158BD of the Act came to be made on 31.03.1997 for the block period ending on 24.11.1995 in the status of AOP. The assessment was made pursuant to return of income for the block period filed on 03.03.1997 showing total undisclosed income at Rs.30 lacs. The assessment was made after various details and explanation were called for vide Notice dated 05.03.1997 to which a detailed reply was filed on 12.03.1997. The assessment was framed on a total income of Rs.40,50,900/- after taking approval of Commissioner of Income Tax, Rajkot. SCA/6215/1999 SCA/6215/1999 4.On 16.04.1999 Notice under section 148 of the Act came to be issued seeking to reassess the income for the block period ending on 24.11.1995 by stating that the respondent had reason to believe that the income for the block period ending on 24.11.1995 had escaped assessment within the meaning of section 147 of the Act. The impugned Notice further stated that the Notice was being issued after obtaining necessary satisfaction of the Commissioner of Income Tax. Thereafter correspondence ensued between some of the erstwhile partners of the petitioner Firm and the respondent authority. Though repeated letters were addressed by the partners asking for the reasons recorded u/s. 148(2) of the Act, the same were not supplied. Some of the partners also made a grievance that the Notice u/s.148 of the Act had not been served upon them and they were not in receipt of any Notice. The last such correspondence resting with communication dated 28.07.1999 from the respondent authority to one of the ex-partners wherein it is stated that it was not obligatory to supply reasons recorded and the addressee was directed to file return immediately. It is at this stage that the SCA/6215/1999 petitioner has approached this Court challenging the impugned Notice issued u/s.148 of the Act. 5.The principal issue raised in this petition and other cognate petitions is whether it is open to the assessing authority to issue Notice u/s. 148 of the Act in respect of an assessment framed for a block period under Chapter XIVB of the Act. 6.Learned Senior Advocate Mr.S.N.Soparkar as well as Mr. K.H.Kazi, learned Advocate appearing for the petitioners have been heard. The Revenue was represented by Mr. M.R.Bhatt, learned Senior Standing Counsel. 7.On behalf of the petitioners it was contended that section 147 of the Act permits an Assessing Officer to reassess an income which has escaped assessment “for any assessment year”. Emphasing the language of the provision, it was contended that in case of a “Block Period ” the same is not in respect of any assessment year and once the assessment of income is for the entire block period the Assessing SCA/6215/1999 Officer can never form a belief that any income chargeable to tax for any assessment year has escaped assessment. 7.1The next contention was based on provisions of section 147 of the Act as well as the Proviso to section 147 of the Act to submit that where the limitation has been prescribed for issuance of Notice reckoned from the end of a particular assessment year the scheme would fail in case of assessment for the block period because it was not possible to specify the assessment year from the end of which the time limit could be computed. 7.2Similarly provisions of sections 151 & 153 of the Act were also pointed out to reiterate submission that in a case where the sanction was required as provided by section 151 of the Act, again same was from the expiry of four years from the relevant assessment year and the conditions could not be fulfilled. Similarly section 153 of the Act also provided different period of limitation as against the provisions of section 158BE of the Act which SCA/6215/1999 provides for time limit for completion of block assessment. 7.3 Another contention was that the assessment framed under Chapter XIV-B of the Act had to be framed after the final order was approved by the Commissioner of Income Tax and a subordinate authority cannot seek to re-open such assessment, as in the present case where the impugned Notice has been issued by the Joint Commissioner of Income Tax. 7.4The period of limitation prescribed under section 158BE of the Act was less than the period of limitation prescribed under section 153 of the Act and therefore also the scheme did not permit such an exercise. SCA/6215/1999 provides for time limit for completion of block assessment. 7.3 Another contention was that the assessment framed under Chapter XIV-B of the Act had to be framed after the final order was approved by the Commissioner of Income Tax and a subordinate authority cannot seek to re-open such assessment, as in the present case where the impugned Notice has been issued by the Joint Commissioner of Income Tax. 7.4The period of limitation prescribed under section 158BE of the Act was less than the period of limitation prescribed under section 153 of the Act and therefore also the scheme did not permit such an exercise. 8.On behalf of the respondent authority it was submitted that section 158BH of the Act specifically provided that save as otherwise provided in Chapter XIV-B, all other provisions of the Act shall apply to assessment made under Chapter XIV-B. It was therefore contended that when one considered the definition of SCA/6215/1999 “block period” as provided in section 158B(a) of the Act, it was clear that the said term covered the period comprising previous years relevant to 10/6 assessment years preceding the previous year in which the search was conducted u/s. 132 of the Act and therefore, wherever the words “assessment year” appear in Chapter XIV of the Act relating to Procedure for assessment the term block period had to be read in place of assessment year to make the scheme workable. 8.1Referring to sub-section (2) of section 158BA of the Act, it was submitted that for the purpose of charging tax not only section 113 of the Act was material but even section 4 had to be considered as laid down by the Apex Court in the case of Commissioner of Income Tax Vs. Suresh N. Gupta (2008) 297 ITR 322 (SC). It was submitted that the Apex Court has considered the entire scheme of Chapter XIV-B of the Act and come to the conclusion that computation of undisclosed income had to be made u/s.158BB in the manner provided in Chapter IV of the Act and therefore the said Chapter is not ruled out by SCA/6215/1999 provisions of Chapter XIV-B of the Act. That the non-obstante clause appearing in section 158BA of the Act had to be read in juxtaposition with section 158BH of the Act. That the concepts of “previous year” and “total income” were retained in Chapter XIV-B of the Act and therefore Chapter IV of the Act cannot be ruled out from block assessment procedure. The following extract from the Apex Court decision was read and emphasized by the learned Counsel : “11 Reading of the relevant provisions of Chapter XIV-B one finds that section 158BA deals with assessment of 'undisclosed income' as a result of search whereas computation of such income falls under section 158BB. The procedure for block assessment falls in section 158BC. Section 158BA begins with a non obstante clause. It states that nothing contained in any other provisions of the 1961 Act, where search is initiated after June 30, 1995, under section 132 or in cases of requisition under section 132A after the cut off date, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of Chapter XIV-B. 12 Relying on section 158BA(1) the assessee claims that Chapter XIV-B is a special procedure for assessment of cases; that it constitutes a self-contained mechanism and, hence, it falls outside the scope of section 4(1) of the 1961 Act, particularly when section 4(1) imposes a charge on the “total income” and not on the undisclosed income and, particularly when section 158BA(2) is an independent charging section in contrast to section 4(1) of the 1961 Act, which imposes a charge on the 'total income' of the previous year. According to the assessee, the charge under section 158BA(2) is on the 'block period' and not 12 Relying on section 158BA(1) the assessee claims that Chapter XIV-B is a special procedure for assessment of cases; that it constitutes a self-contained mechanism and, hence, it falls outside the scope of section 4(1) of the 1961 Act, particularly when section 4(1) imposes a charge on the “total income” and not on the undisclosed income and, particularly when section 158BA(2) is an independent charging section in contrast to section 4(1) of the 1961 Act, which imposes a charge on the 'total income' of the previous year. According to the assessee, the charge under section 158BA(2) is on the 'block period' and not According to the assessee, the charge under section 158BA(2) is on the 'block period' and not on the total income of the 'previous year'. Therefore, according to the assessee, Chapter XIV-B is a self-contained mechanism. 13 As stated above, these arguments advanced on behalf of the assessee have no merit. Section 158B defines 'block period' to mean the period comprising the previous years relevant to 10/6 assessment years preceding the previous year in which the search was conducted under section 132. It also includes the period up to the date of commencement of such search or date of requisition. Under section 4, the subject of charge is the income of the previous year and not the income of the assessment year. Thus, tax is levied on the actual income of the previous year. Each 'previous year' is a distinct unit of time for the purposes of assessment. However, when we come to section 158BA, we find that Parliament has for the purposes of assessment. However, when we come to section 158BA, we find that Parliament has taken the block period to mean the period comprising previous years relevant to 10/6 assessment years preceding the previous year in which the search is conducted. In other words, Parliament has in search cases expanded the unit of time for block assessment purposes from 1 year to 10/6 previous years. However, it is important to note that the unit of time remains constant. It is open to Parliament to treat the unit of time as one year in normal assessment cases and, at the same time, it is also open to Parliament to treat 10/6 previous years as a unit of time for the block assessment period. The important thing to be noted is that the block assessment computation in section 158BB does not exclude the concept of 'previous years' as well as the concept of 'total income'. Those concepts are retained. Further, we need to examine the scheme of Chapter XIV-B. The said Chapter has three parts consisting of assessment, computation and procedure for making block assessment. Assessment of undisclosed income as a result of search stands covered by section 158BA whereas computation of undisclosed income of the block period falls in section 158BB and procedure for block assessment falls in section 158BC. In this case, we are mainly concerned withcomputation of undisclosed income under section158BB(1). This section incorporates the principle of aggregation of total income of the previous years falling within the block period computed in accordance with the provisions of Chapter IV. The important thing to be noted is that the computation has to be done even under section 158BB of 'undisclosed income' in the manner provided for in Chapter IV of the 1961 Act which deals with “computation of total income”. Chapter IV deals with computation in cases of normal assessment. Chapter IV is not ruled out by the provisions of Chapter XIV-B. In this connection, we may also SCA/6215/199912/62 take note of section 158BH which deals with SCA/6215/199912/62 take note of section 158BH which deals with application of other provisions of the 1961 Act to the block assessment procedure in Chapter XIV-B. Section 158BH makes it clear that save as otherwise provided in Chapter XIV-B, all other provisions of the 1961 Act shall equally apply to block assessment. Therefore, one has to read the non obstante clause in section 158BA in juxtaposition with section 158BH. Keeping in mind the provisions of section 158BB and keeping in mind the Chapter XIV-B, we are of the view that Chapter IV is not ruled out from block assessment procedure and, therefore, one has to read section 158BB with section 4 of the 1961 Act. 14There is one more fact which needs to be noted. A bare reading of the provisions of section 158BA and section 158BB indicates that the searches conducted by the Department are an important means of unearthing black money. However, undisclosed income has to be related to the different years in which the income was earned. The essence of the block assessment procedure, therefore, is a separate single assessment of undisclosed income, detected as a result of a search. This separate assessment is in addition to normal or regular assessment covering the same period. A separate return is a pre-requisite for making a 'block-assessment'. However, in the matter of computation, the principle of aggregation of total incomes, is inbuilt into section 158BB. We have to subtract one aggregate from the other. Further, while applying the principle of aggregation of the SCA/6215/1999 total incomes, computation is required to be done in accordance with the provisions of Chapter IV. Therefore, in our view, section 4 has to be read with section 158BB. That section is not ruled out by section 158BB. If section 4 has to be read with section 158BB for computing undisclosed income then the provisions of the relevant Finance Act have got to be read into the block assessment scheme under Chapter XIV-B, even prior to June 1,2002. 15.Under section 158BB, there is the theory of 'block period'. It is based on 'the principle of aggregation of total incomes'. Under that section, the first aggregate to be computed is the total income of the previous years falling within the block period including returned/assessed incomes as per regular returns and regular assessments. The second aggregate to be computed is the aggregate of the total incomes/losses of the previous years determined in terms of clauses (a) to (f) of section 158BB(1). The difference between the first aggregate and the second aggregate is described in section 158B(b) as the 'undisclosed income' to be taxed under the provisions of section 113 of the 1961 Act at the special rates prescribed. Further, clause (a) of the Explanation to section 158BB clarifies that the total income/loss of each previous years 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 SCA/6215/1999 set off of brought forward losses under Chapter VI SCA/6215/1999 or unabsorbed depreciation under section 32(2) of the 1961 Act. Hence, one has to read section 158BB with section 4 of the 1961 Act. There is noconflict between the computation machinery under-Chapter XIVB and normal computation machineryunder Chapter IV. This is the importance behindenactment of section 158BH which inter alia statesthat if there is no conflict between the provisions-of Chapter XIVB and any other provisions of the1961 Act, then the latter will operate. There is a fallacy in the argument of the assessee that the concepts of 'total income' and 'previous year' are given a go by in Chapter XIV-B. The above analysis of section 158BB indicates that both the concepts are retained in Chapter XIV-B. The only difference is that section 4 of the 1961 Act charges the total income of a person of one single previous year (unit of assessment) whereas section 158BA(2) levies a charge on the income of a person for the block period of previous years relevant to 10/6 assessment years. In our view, the words 'block period', as defined in section 158B(a), comprises previous years relevant to 10/6 assessment years as one unit of time for the purposes of assessment. As stated above, the object behind the enactment of Chapter XIV-B is to assess and compute 'undisclosed incomes' relatable to different accounting years in which the income is earned. Therefore, if the block period comprising of previous years relevant to 10/6 assessment years is treated by Parliament as one unit of time for assessment purposes, one has to correlate 'undisclosed income' to each of the years in which income was earned by the assessee. It is true that under Chapter XIV-B, computation of regular income and computation of undisclosed income has to be worked out separately. However, to arrive at the figure of undisclosed income, the said parallel calculations have to converge in order to work out the difference between the first and the second aggregates of the total incomes/losses of the previous year, in which undisclosed income is taxed under section 113. Therefore, in our view, the concept of a charge on the 'total income' of the previous year under the 1961 Act is retained even under Chapter XIV-B. Therefore, section 158BB which deals with computation of undisclosed income of the block period has to be read with computation of total income under Chapter IV of the 1961 Act.” (emphasis supplied) 9.In rejoinder, the learned Counsel appearing for the petitioner has placed reliance on decision of High Court of Rajasthan in the case of Commissioner of Income Tax Vs. Ramesh Chand Soni (2005) 194 CTR (Raj) 84. It was reiterated that section 158BE of the Act was a complete code on the subject of prescribing and computing limitation for the purpose of completing block assessment and hence other provisions of the Act, like section 153 of the Act, had to be necessarily excluded. 10. When Chapter XIV-B was introduced the Memorandum Explaining the Provisions in the Finance Bill,1995 stated the purpose and the object for introducing the said chapter in following terms : “SPECIAL PROCEDURE FOR ASSESSMENT OF SEARCH CASES. Searches conducted by the Income-tax Department are important means of unearthing black money. However, under the present scheme, valuable time is lost in trying to relate the undisclosed incomes to the different years. Tax evaders generally manage to divert the focus to procedural and legal issues and often invent new evidence to explain undisclosed income. By the time search-related assessments are completed, the effect of the search is considerably diluted. Legal battles continue for many years to decide which income is assessable in which assessment year. stated the purpose and the object for introducing the said chapter in following terms : “SPECIAL PROCEDURE FOR ASSESSMENT OF SEARCH CASES. Searches conducted by the Income-tax Department are important means of unearthing black money. However, under the present scheme, valuable time is lost in trying to relate the undisclosed incomes to the different years. Tax evaders generally manage to divert the focus to procedural and legal issues and often invent new evidence to explain undisclosed income. By the time search-related assessments are completed, the effect of the search is considerably diluted. Legal battles continue for many years to decide which income is assessable in which assessment year. No finality is reached and the seized assets remain with the Department for a long time. In order to make the procedure of assessment of search cases cost-effective efficient and meaningful, it is proposed to introduce a new scheme of assessment of undisclosed income determined as a result of search under SCA/6215/1999 section 132 or requisition under section 132A. Under this scheme, the undisclosed income detected as a result of any search initiated, or requisition made, after 30-6-1995, shall be assessed separately as income of a block of years. Where the previous year has not ended or the due date for filing a return of income for any previous year has not expired, the income recorded on or before the date of the search or requisition in the books of account or other documents, maintained in the normal course, relating to such previous years shall not be included in the block” 11.Therefore, this is a pointer to the fact that undisclosed income, in other words, the income which has not been disclosed and which has not been taxed, has to be assessed by adopting a special procedure. The special procedure has been evolved to save valuable time which is otherwise lost in the process of co-relating the undisclosed income to different assessment years by obviating the legal battles involving issues of procedure and interpretation of law. The legislature found it necessary to arrive at a cost effective, efficient and meaningful procedure SCA/6215/1999 to avoid litigations which continue for many years to decide which income, or part of income, is assessable in which assessment year. The entire present controversy has to be considered and the submissions appreciated in light of the aforesaid legislative intent. 12.Chapter XIV-B of the Act lays down a SPECIAL PROCEDURE FOR ASSESSMENT OF SEARCH CASES. The legislative history of the said Chapter, inclusive of all relevant amendments till date, may be borne in mind to appreciate the controversy. The said Chapter was inserted by the Finance Act, 1995. The scope and effect of the said Chapter has been explained by Central Board of Direct Taxes (CBDT) by issuing Circular No. 717 dated 14.08.1995. The relevant extract of the said Circular reads as under : “Special Procedure for assessment of search cases.- 39.1 Searches conducted by the Income-tax Department are important means for unearthing black money. However, under the present scheme, valuable time is lost in trying to relate the undisclosed incomes to the different years. Tax-evaders generally manage to divert the focus to procedural and legal issues and often invent new evidence to explain undisclosed income. By the time search-related assessments are completed, the effect of the search is considerably diluted. Legal battles continue for many years to decide which income is assessable in which assessment year. No finality is reached and the seized assets remain with the Department for a long time. “Special Procedure for assessment of search cases.- 39.1 Searches conducted by the Income-tax Department are important means for unearthing black money. However, under the present scheme, valuable time is lost in trying to relate the undisclosed incomes to the different years. Tax-evaders generally manage to divert the focus to procedural and legal issues and often invent new evidence to explain undisclosed income. By the time search-related assessments are completed, the effect of the search is considerably diluted. Legal battles continue for many years to decide which income is assessable in which assessment year. No finality is reached and the seized assets remain with the Department for a long time. 39.2. In order to make the procedure of assessment of search cases cost-effective, efficient and meaningful, a new scheme has been introduced for the assessment of undisclosed income determined as a result of search under section 132 or requisition under section 132A. Under this scheme, the undisclosed income detected as a result of any search initiated, or requisition made, after30-6-1995shallbeassessed separately as income of a block of years. Where the previous year has not ended or the due date for filing a return of income for any previous year has not expired, the income or the transaction recorded on or before the date of the search or requisition in the books of account or other documents maintained in the normal course of business relating to such previous years shall not be included in the block assessment. 39.3. The salient features of this scheme are as under:- (a)Block period. - The undisclosed income of a person shall be assessed as the income of the block period consisting of a period of 10 previous years, preceding the previous year in which the search was conducted or the books of accounts, assets, etc. were requisitioned. The period of the current year upto the date of the search will also form part of the block period. (b)Undisclosed income.- The undisclosed income has been defined in clause (b) of section 158B. The term 'undisclosed income' 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. (ii) The undisclosed income of the block period, therefore, shall be aggregate of the total income of the previous years falling within the block period, computed on the basis of evidence found as a result of search and such other enquiries as the assessing officer may make and such other materials or information as are available with him, as reduced by the aggregate of the total income, or as increased by the losses returned/determined earlier in respect of such previous years. (iii) Where assessments under section 143, 144 or 147 have been concluded or determination of income has been made under section 143(1A) or 143(1B), the same will be reduced for determining the undisclosed income. (iv) Where returns of income have been filed under any sub-section of section 139 or in response to a Notice issued under section 142(1) or under section 148 but or in response to a Notice issued under section 142(1) or under section 148 but assessments have not been made till the date of search, the incomes disclosed in such returns of income shall be reduced for computing the undisclosed income. total income, or as increased by the losses returned/determined earlier in respect of such previous years. (iii) Where assessments under section 143, 144 or 147 have been concluded or determination of income has been made under section 143(1A) or 143(1B), the same will be reduced for determining the undisclosed income. (iv) Where returns of income have been filed under any sub-section of section 139 or in response to a Notice issued under section 142(1) or under section 148 but or in response to a Notice issued under section 142(1) or under section 148 but assessments have not been made till the date of search, the incomes disclosed in such returns of income shall be reduced for computing the undisclosed income. (v)In a case where due date for filing a return of income has expired but no return of income has been filed there will be no reduction of any amount for determining the undisclosed income stated above. (vi) Where the previous year has not ended or the date of filing the return of income under section 139(1) for any previous year has not expired, the income determined on the basis of transactions recorded on or before the date of search in the books of account or other documents maintained in the normal course relating to such previous years shall be reduced. (vii) However, in a case where undisclosed income has been determined in any earlier block assessment, the same will be reduced from the total income for determining the undisclosed income. (viii) Where any order of settlement under section 245D has been passed by the Settlement Commission, the income determined in such order shall be reduced accordingly.(ix) It may again be emphasised that the use of the words 'such previous years' shows that the exercise shall be restricted to years in respect of which the undisclosed income has been found and need not be undertaken for all the 10 years comprised in the block period. (c) Applicability of the provisions.- The special procedure for assessment of search cases as prescribed in Chapter XIVB shall apply in cases where search is initiated under section 132 or a requisition is made under section 132A after 30[th] June, 1995. Proceedings under section 132(5) or 132(7) will no longer be necessary for searches initiated on or after 1[st]July,1995. Proceedings under section 132(5) or 132(7) will however, be required where initial search was conducted prior to 1[st] July,1995 irrespective of the last search or consequential searches which may have continued and concluded on or after that date i.e. 1[st] July, 1995. (ii) The order of assessment for the block period shall be passed within one year from the end of the month in which last of the search warrants is executed. Though the term execution has not been defined in Chapter XIVB, it will take its usual meaning which means the date on which the search has been completed. Where consequential searches or requisitions have been made, the period of limitation of one year shall start from the end of the month in which the last of such consequential operations were concluded. (iii) The assessment order for the block period shall be passed by an assessing officer not below the rank of Assistant Commissioner of Income-tax with the prior approval of the Commissioner of Income-tax.” xxx xxx xxx xxx xxx (e) Procedure for making block assessment.- 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 varied in the same manner as a return under clause (1) of sub-section (1) of section 142 setting forth his total income including undisclosed (iii) The assessment order for the block period shall be passed by an assessing officer not below the rank of Assistant Commissioner of Income-tax with the prior approval of the Commissioner of Income-tax.” xxx xxx xxx xxx xxx (e) Procedure for making block assessment.- 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 varied in the same manner as a return under clause (1) 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 provisions of section 142, sub-section (2) and (3) of section 143 and section 144 shall apply accordingly. The assessing officer shall not be required to issue any Notice under section 148 for the purpose of proceedings under this Chapter. Though the block period can be extended upto 10 years in a case where the assessee has not disclosed undisclosed income in any one or more of the previous years in the block periods and the assessing officer also does not find any material indicating undisclosed income in any one or more of the previous years comprised in the block period, it will not be necessary to do the exercise of computing the undisclosed income for the relevant years and the exercise may be limited to the years in respect of which the undisclosed income has been found. On determination of the undisclosed income of the block period, the assessing officer shall issue an order of assessment and determine the demand payable by him on the basis of such assessment. The assets seized in the course of search or taken possession of as a result of requisition under section 132A shall be retained to the extent necessary and shall be dealt with in the manner laid down under section 132B.(ii) In computing the undisclosed income for the block period, the provisions of sections 68, 69, 69A, 69B and 69C shall, mutatis mutandis apply and the term 'financial year' mentioned in these sections shall be taken to mean the relevant financial years falling within block period. (iii) Before the adoption of uniform previous year the assessees were allowed to have any accounting period as their previous year. In working out the block period, therefore, there may be cases in which a part of a particular financial year may go beyond the block period or during the transitional period of switching over from the old system to uniform previous year part of a financial year may not fall in the previous year covered in the block period. In such cases, the '10 previous years preceding the previous year in which the search has been initiated' shall be taken as the previous years relevant to the 10 assessment years immediately preceding the year relevant to the previous year in which the search has taken place irrespective of the fact whether the assessments for all these assessments years have already been made or not. For example, when a search has taken place on 11-7-1995, the block of 10 previous years shall be block relevant to assessment years 1986-87 to 1995-96 plus the period upto date of search i.e. from 1-4-1995 to 11-7-1995. the fact whether the assessments for all these assessments years have already been made or not. For example, when a search has taken place on 11-7-1995, the block of 10 previous years shall be block relevant to assessment years 1986-87 to 1995-96 plus the period upto date of search i.e. from 1-4-1995 to 11-7-1995. (iv) Where the assessee offers no explanation about the nature of source of acquisition of certain assets or the explanation offered by him is not, in the opinion of the Assessing Officer, satisfactory, the value of such assets may be deemed to be income of the relevant previous year as mentioned in section 158BB(2). The onus of proving to the satisfaction of the assessing officer that any undisclosed assets including the income from undisclosed property has already been disclosed in any return of income filed by the assessee before the initiation of the search shall be on the assessee.” 12.1 Subsequently by the Finance (No.2) Act, 1996 certain amendments in Chapter XIV-B of the Act came to be made with retrospective effect from 01.07.1995 i.e. the date on which Chapter XIV-B of the Act was made effective. The scope and effect of the amendments have been explained by CBDT vide Circular No. 762 dated 18.02.1998. The relevant extract reads as under : “Rationalisation of special procedure for assessment of search cases.- 50.1 The Finance Act, 1995 introduced a new scheme of assessment of undisclosed income determined as a result of search. Under this scheme, the undisclosed income detected as a result of a search initiatedafter30-6-1995isassessed separately as the income of a designated period (block) consisting of ten previous years prior to the previous years in which the search was conducted and also the period of the current previous year upto the date of search. The undisclosed income is taxed at a flat rate of 60 per cent.” xxx xxx xxx xxx “(b) Assessment procedure (i)The authority competent to made the block assessment has been laid down in section 158BG of the Income-tax Act. As per this section, the order of assessment for the block period shall be passed by an Assessing Officer not below the rank of an Assistant Commissioner. (ii) The time limit for completion of block assessment is prescribed in section 158BE of the Income-tax Act. As per this section, the order under section 158BC shall be passed within one year from the end of the month in which the last of the authorisations for search under section 132 or for requisition under section 132A, as the case may be, was executed. (iii) In order to facilitate the assessment process, and to ensure that the investigation is carried to its logical conclusion in a focused manner section 2(7A) of the Act has been amended to include the Assistant Director of Income-tax within the meaning of “Assessing Officer”, enabling him to discharge the assessment functions also. As a corollary to this, section 158BG has also been amended to provide that the block assessment order shall be passed after obtaining the approval of the Director of Income-tax in cases where the ADIT (Inv.) acts as the Assessing Officer. (iv) The amendments will take effect from 1[st ]October, 1996. (c) Definition of 'block period' (i) Under section 158B(a), the block period has been defined to include ten previous years preceding the previous year in which the search was conducted under section 132. Before the adoption of the uniform previous year, assessees were allowed to have any accounting period as the previous year under section 3 of the Income-tax Act. Consequently, the block period would be different in different cases depending upon the previous years adopted by the assessees before1-4-1989. (Inv.) acts as the Assessing Officer. (iv) The amendments will take effect from 1[st ]October, 1996. (c) Definition of 'block period' (i) Under section 158B(a), the block period has been defined to include ten previous years preceding the previous year in which the search was conducted under section 132. Before the adoption of the uniform previous year, assessees were allowed to have any accounting period as the previous year under section 3 of the Income-tax Act. Consequently, the block period would be different in different cases depending upon the previous years adopted by the assessees before1-4-1989. (ii) In view of this, the Act amends the definition of block period as consisting of previous years relevant to ten assessment years. This will make the block period uniform in case of all assessees. (iii) The amendment will take effect retrospectively from 1[st] July,1995.” 12.2 Again by the Finance (No.2) Act, 1998 certain SCA/6215/1999 further amendments were made in Chapter XIV-B of the Act and the same have been explained by CBDT vide Circular No. 772 dated 23.12.1998. The relevant extract reads as under : “53. Clarificatory amendments in procedure for block assessment.-53.1 To set at rest the controversy as to whether block assessment subsumes the regular assessments or is independent of the latter, the Act has inserted an Explanation after sub-section (2) of section 158BA of the Income-tax Act clarifying that assessments completed under Chapter XIV-B shall be in addition to regular assessments in respect of each previous year included in the block period. Further, undisclosed income relating to the block period shall not include the income assessed in regular assessment. Similarly income in regular assessment shall not include the income of the block period assessed in block assessment.53.2 To settle the controversy regarding meaning of the word 'execution' while calculating the period of limitation in section 158BE of the Income-tax Act, the Act has inserted a new clarificatory Explanation. An authorisation is deemed to have been executed in the case of search on the conclusion of search as recorded in the last panchnama drawn in relation to any person in whose case the warrant of authorisation has been issued. In regard to requisition under SCA/6215/1999 section 132A of the Income-tax Act, the authorisation would be deemed to have been executed on actual receipt of books of account or other documents or assets by the authorised officer. 53.3 The above amendments will take effect retrospectively from 1[st] July, 1995 and will, accordingly, apply in relation to the assessment year 1996-97 and subsequent years”. 12.3 The Finance Act, 2001 carried out certain amendments in Chapter XIV-B of the Act. But the said amendments were made effective from 01.06.2001. The relevant extract of CBDT Circular No. 14/2001-04 dated 12.12.2001 reads as under : “69. Rationalising the block period-69.1 Under the existing provisions contained in clause (a) of section 158B of the Income-tax Act relating to assessment in cases of search or requisition, 'block period' means the previous years relevant to ten assessment years preceding the previous year in which the search was conducted under section 132 or any requisition was made under section 132A, and includes, in the year in which the search was conducted or requisition was made, the period up to the date of commencement of such search or as the case may be, the date of such requisition. 69.2 In line with the amendment proposed in section 149, to reduce the maximum time period for issue of Notice under section 148 for initiating reassessment proceedings., etc., from ten years to six years, the Act has amended the definition of 'block period' to mean the period comprising the previous Act relating to