The Assistant Commissioner Of Income Tax-1, Bhilai v. Sunil Kumar Jain

IN HIGH COURT OF CHHATTISGARH ATBILASPUR I;TAX CASE No.U ofS01^^©UAPPELLANT^^"[^The]Commissioner[ Assistant] of IncomeTax-1, BhilaiVsRESPONDENT/ ,SunilKumarJain,ProprietorofM/sSaheli ^fe^Y',Jewellers,CivicCentre,^..v-' ^Bhilai, Chhattisgarh•"w ~wr^APPEAL UNDER SECTION 260-A OF THE INCOME ^- AFR HIGH COURT OF CHHATTISGARH AT BILASPUR CORAM:HON'BLE SHRI YATINDRA SINGH, C.J.HON'BLE SHRI MANINDRA MOHAN SHRIVASTAVA, J. TaxCaseNo.17of2011 APPELLANT The Assistant Commissioner of IncomeTax-1, BhilaiVERSUSSunil Kumar Jain RESPONDENT Aopeal under Section 260-A of the Income Tax Act. 1961 Appearance: Shri Anand Dadariya, counsel for the Appellant.Shri GN Purohit, Senior Advocate with Shri AbhishekOswal, Advocate for the Respondent. JUDGEMENT (15th January, 2014) 1. The only question involved in this tax case is, 'Whether sections 147/ 148 of the Income Tax Act, 1961(the Act) providing for reassessment are applicable to theblock assessment under Chapter XIVB of the Act or not.'It arises in this tax appeal filed under section 260-A of the Act againstthe order of the Income Tax Appellate Tribunal, Bilaspur Bench, Bilaspur(the Tribunal) dated 22.01.2010 dismissing the appeal filed by theIncome Tax Department (the Department) against Shri Sunil Kumar Jain(the Assessee) forthe block period 01.04.1989 to 17.11.1999. THE FACTS 2. The Assessee is a jeweller. A search took place on 17.11.1999 in theresidential as well as business premises of the Assessee. Thereafter, anotice under section 158BC of[ the][Act][ was][ issued][ on][ 10.07.2000.][ It][ was]served on the Assessee on 29.07.2000. 3.TheAssesseefiledhisreturnon11.09.2000declaringtotalundisclosed income of?41,692/-. The Assessing Officer (the AO), by hisorder dated 30.01.2002, framed the block assessment of?98,002/-. /"(^/y /€'"'"!^n.1^^.,--'•^ J 4. Aggrieved by the aforesaid order, the Assessee filed a revision undersection 264 of the Act. It was partly allowed by the Commissioner ofIncome Tax, Raipur (the CIT) on 26.03.2002 granting reliefof?15,450/-. 5. Subsequently, the CIT initiated a proceeding under section 263 of theAct and remanded the case back to the AO for re-consideration on25.03.2004. 6. Aggrieved by the aforesaid order, the Assessee filed an appeal beforethe Tribunal. It was allowed on 14.01.2005 and order of the CIT dated25.03.2004 under section 263 of the Act was set aside. 7. Subsequently, a notice under section 148 readwith section 158BH ofthe Act was issued for reassessment on 13.03.2005. This notice was onthe basis of same material on which the CIT had passed the order undersection 263 of the Act. 8. The Assessee filed a writ petition namely WP(T)-1676 of 2005,challenging the notice under section 148 of the Act.However, no interimorder was granted in the writ petition and the assessment proceedingsbefore the AO continued.The AO by his order dated 29.03.2006,assessed the undisctosed income of ?.2,96,74,778/-. 9.The Assessee filed an appeal before the Commissioner[of][ Income]Tax (Appeals) (the CIT-A).It was allowed on 29.05.2006 and the orderoftheAO was set aside essentially on the following findings: (i) The block assessment cannot be reopened under sections 147and 148 of the Income Tax Act;and 148 of the Income Tax Act; (ii) The reasons for re-opening of the assessment are the same forwhich the action was taken and the order passed under section263 of the Act. This order has been set aside by the Tribunal andthe order of the Tribunal has become final. Now, on the basis ofthe same material, notice under section 148 of the Act, cannot beissued;which the action was taken and the order passed under section263 of the Act. This order has been set aside by the Tribunal andthe order of the Tribunal has become final. Now, on the basis ofthe same material, notice under section 148 of the Act, cannot beissued; (i) The block assessment cannot be reopened under sections 147and 148 of the Income Tax Act;and 148 of the Income Tax Act; (ii) The reasons for re-opening of the assessment are the same forwhich the action was taken and the order passed under section263 of the Act. This order has been set aside by the Tribunal andthe order of the Tribunal has become final. Now, on the basis ofthe same material, notice under section 148 of the Act, cannot beissued;which the action was taken and the order passed under section263 of the Act. This order has been set aside by the Tribunal andthe order of the Tribunal has become final. Now, on the basis ofthe same material, notice under section 148 of the Act, cannot beissued; (iii)The AO has completed the assessment on protective basis,however, there cannot be protective re-opening;however, there cannot be protective re-opening; (iv)The fact that the AO had made protective assessment shows thathe was not sure about the income of the Assessee and as such itcannot be said that there was any reason to believe that theincome of the Assesseehadescapedassessment and thecondition precedent for issuing of the notice under section 148 ofthe Act was not satisfied;he was not sure about the income of the Assessee and as such itcannot be said that there was any reason to believe that theincome of the Assesseehadescapedassessment and thecondition precedent for issuing of the notice under section 148 ofthe Act was not satisfied; (v) There was no fresh material and the AO could not to review hisown decision as it was impermissible under the law;own decision as it was impermissible under the law; (vi)The notice under section 148 was issued four years after it wasfirst assessable in the block period and the conditions precedentunder section 147 of the Act were not fulfilled.first assessable in the block period and the conditions precedentunder section 147 of the Act were not fulfilled. (vii) The order is illegal. Apart from the aforesaid findings, there were other objections includingnon-application of mind and limitation under section 149 ofthe Act. 10. After order of the CIT-A dated 29.05.2006, the WP(T)[ 1676][ of][ 2005]was dismissedon26.06.2006on the ground that it has becomeinfructuous. 11. The Department filed an appeal before the Tribunal against the orderof the CIT-A dated 29.05.2006.It was dismissed essentially on theground that sections 147/148 ofthe Act were not applicable to the blockassessment under Chapter XIVB of the Act. Hence, the present appeal. QUESTIONS FOR DETERMINATION 12. We have heard counsel for the parties. The appeal was admitted forhearing on 06.07.2011 on the following substantial questions of law: (i) Whether on the facts and in the circumstances of the case and inlaw the tribunal was justified in holdingthattheprovisionsofSection 148oftheActarenotapplicabletotheblockassessment order passed under Chapter XIVB of the Act andthereby allowing reliefto the assessee^law the tribunal was justified in holdingthattheprovisionsofSection 148oftheActarenotapplicabletotheblockassessment order passed under Chapter XIVB of the Act andthereby allowing reliefto the assessee^ (ii) Whether on the facts and circumstances of the case, the CIT(A)and the Tribunal was legally justified in holding that the entireproceedings[in][ re-assessment][ is][ vitiating][ on][ account][ of][ issuance]of notice under Section 148 ofthe Income Tax Act, 1961?'and the Tribunal was legally justified in holding that the entireproceedings[in][ re-assessment][ is][ vitiating][ on][ account][ of][ issuance]of notice under Section 148 ofthe Income Tax Act, 1961?' 13. The aforesaid two questions are substantially same as the questionmentioned in the opening paragraph of this judgement. THE DECISION Submissions of Department Counsel 14. The counsel for the Department relies upon section 158BH ofthe Act,and the decisions in: (i) Commissioner of Income Tax v. Suresh N Gupta {(2008) 214 CTR(SC) 274} (the Suresh-Gupta case); and(SC) 274} (the Suresh-Gupta case); and 13. The aforesaid two questions are substantially same as the questionmentioned in the opening paragraph of this judgement. THE DECISION Submissions of Department Counsel 14. The counsel for the Department relies upon section 158BH ofthe Act,and the decisions in: (i) Commissioner of Income Tax v. Suresh N Gupta {(2008) 214 CTR(SC) 274} (the Suresh-Gupta case); and(SC) 274} (the Suresh-Gupta case); and (ii)[Commissioner][ of][ Income][ Tax][ v.][ Peerchand][ Ratanlal][ Baid](HUF)(Gauhati) {322 ITR 544} (the Peerchand case).(Gauhati) {322 ITR 544} (the Peerchand case). He submits that: Section 58BH applies all other provisions of the Act to theassessment under Chapter XIVB of the Act;assessment under Chapter XIVB of the Act; Sections 147 and 148 of the Act are other provisions of the Actand are also applicable for the block assessment made under theChapter;and are also applicable for the block assessment made under theChapter; The entire proceeding can not be set aside on the ground thatsections 147/ 148 of the Act are not applicable to the blockassessment under this Chapter.sections 147/ 148 of the Act are not applicable to the blockassessment under this Chapter. Chapter XIVB —SpecialProcedure 15. Chapter XIVB is titled as 'Special procedure for assessment ofsearchcases'.It provides special procedure for assessment under such cases.Under this Chapter, the assessment of many years together and not onlyone year is done. This is called block period. 16. Section 158B is titled as 'Definitions'. It defines block period as wellas undisclosed income. 17. At the relevant time, Chapter XIVB provided the 'block period' tomean, the previous years relevant to ten assessment years preceding theprevious years in which the search was conducted and up to the date ofcommencement ofthe search. 18.Section 158BH of the Act is in Chapter XIVB of the Act.It is titled'Application of other provisions of the Act': It applies other provisions ofthis Act to the block assessment under this chapter. It was necessary toclarify this as this chapter provides a special procedure in case of searchfor assessing the income for the block period.'Application of other provisions of the Act': It applies other provisions ofthis Act to the block assessment under this chapter. It was necessary toclarify this as this chapter provides a special procedure in case of searchfor assessing the income for the block period. 19.Nevertheless, a provision will become applicable by virtue of 158BHonly if it can be applied on its wording to Chapter XIVB. The question is,can it be so applied? 20.The Suresh-Gupta case is related to the block assessment but thequestion whether sections 147/ 148 of the Act were applicable in theblockassessmentornot,wasnotinvolvedtherein.However,inPeerchand case, this very question was involved and was answered[in]favour ofthe Department. Sections 147/148 Should Be Strictly Construed 21.Kanga, Palkhivala and Vyas on The Law and Practice of IncomeTax, Volume-11, Ninth Edition, page 1826 explains the scope of thesection 147 of the Act as follows:'This section imposes no charge on the subject but dealsmerelywiththemachineryofassessment,1andininterpreting provisions of this kind the rule is that thatconstructionshouldbepreferredwhichmakesthemachinery workable.2 This, however, does not mean that 1 Bhimraj v CIT 32 ITR 289, affirmed in 41 ITR 221 (SC); Radhakant v. Johri 39ITR 182; Chhaganlal v ITO 46 ITR 351, 357; Dalmia v CIT 194 ITR 700,affirmed in 236 ITR 480 (SC) on another issue; CIT v Saraf 207 ITR 217; SardarHarvinder v ACIT 227 ITR 512; 2 CIT v Mahaliram 8 ITR 442, 448 (PC); CIT v Sun Engg. Works 198 ITR 297(SC);[and][ s.1][ under][ Interpretation][ ofthe][ Income][ Tax][ Act;] V- the section is to be liberally construed; since the reopeningof an assessment is a power of an extraordinary nature, thesection should be strictly construed.3It is in this light that sections 147/ 148 are to be construed /'e they are tobe construed strictly. 1 Bhimraj v CIT 32 ITR 289, affirmed in 41 ITR 221 (SC); Radhakant v. Johri 39ITR 182; Chhaganlal v ITO 46 ITR 351, 357; Dalmia v CIT 194 ITR 700,affirmed in 236 ITR 480 (SC) on another issue; CIT v Saraf 207 ITR 217; SardarHarvinder v ACIT 227 ITR 512; 2 CIT v Mahaliram 8 ITR 442, 448 (PC); CIT v Sun Engg. Works 198 ITR 297(SC);[and][ s.1][ under][ Interpretation][ ofthe][ Income][ Tax][ Act;] V- the section is to be liberally construed; since the reopeningof an assessment is a power of an extraordinary nature, thesection should be strictly construed.3It is in this light that sections 147/ 148 are to be construed /'e they are tobe construed strictly. 22.Section 147 of the Act is titled as 'lncome Escaping Assessment'. Itprovides that if the Assessing Officer has reason to believe that anyincome chargeable to the tax has escaped in any assessment year, hecouldre-assesstheincomesubjecttofulfillingotherconditionsmentioned in that section. 23.Section 148 is titled as 'lssue of notice where income has escapedassessment'.Itprovidesissuanceofnoticebeforemakingtheassessment, re-assessment or re-computation under Section 147 ofthe Act.24. Section 147 of the Act uses the words 'in any assessment year';itdoes not use the words['in]any assessment year or for any block period'.Had it used the words['in]any assessment year or for any block period'the matter would have been different but in absence of these words, canwe read these words in the section when they are not there. If we do so,then will it be not stretching the words too far?assessment'.Itprovidesissuanceofnoticebeforemakingtheassessment, re-assessment or re-computation under Section 147 ofthe Act.24. Section 147 of the Act uses the words 'in any assessment year';itdoes not use the words['in]any assessment year or for any block period'.Had it used the words['in]any assessment year or for any block period'the matter would have been different but in absence of these words, canwe read these words in the section when they are not there. If we do so,then will it be not stretching the words too far? 25. Often the block assessment is in respect of the years for which theassessment has already been done under the Act. The block assessmentis a kind of re-assessment, ori the basis of material found in the search.This is also indicated by first proviso to section 158BC (a) ofthe Act. 26.Section 158BC is titled as 'Procedure for Block Assessment'.Thefirst proviso (see below)4 to section 158BC(a) ofthe[Act]provides[that][ for] 3 New Kaiser-1-Hind v CIT 107 ITR 760, 764; ITO v Mewalal Dwarkaprasad 176ITR 529 (SC).4The relevant portion of the proviso is as follows:ITR 529 (SC).4The relevant portion of the proviso is as follows: \ir the purpose of proceedings under Chapter XIVB of the Act, no noticeunder section 148 of the Act is required to be issued. 27. In case sections 147/ 148 of the Act are applicable to the blockassessment,it willamount toreassessment of thereassessmentproceeding.28. Section 147 of the Act has not used the word 'the block period'. Thereason seems to be simple that the block assessment itself is there-assessmentproceedings.There wasnonecessity forprovidingreassessment of the reassessment proceedings. 29. The Gujarat High Court has considered this question in detail inCargo Clearing Agency (Gujarat) v. Joint Commissioner of Income Tax{(2008) 218 CTR (Guj) 541} (the Cargo-Clearing case) and has held thatsections 147/148 of the Act are not applicable to the assessment underChapter XIVB of the Act.We agree with the same and are unableto subscribe to the view takenby theGauhatiHigh Court in thePeerchand case. 30.The material for notice for reassessment under section 148 of theAct is the same as was for passing order under section 263 of the Act.The order under section 263 of the Act has been set aside by theTribunal on the ground that the initial order passed by the AO was notprejudicial to the interest ofthe Revenue. 29. The Gujarat High Court has considered this question in detail inCargo Clearing Agency (Gujarat) v. Joint Commissioner of Income Tax{(2008) 218 CTR (Guj) 541} (the Cargo-Clearing case) and has held thatsections 147/148 of the Act are not applicable to the assessment underChapter XIVB of the Act.We agree with the same and are unableto subscribe to the view takenby theGauhatiHigh Court in thePeerchand case. 30.The material for notice for reassessment under section 148 of theAct is the same as was for passing order under section 263 of the Act.The order under section 263 of the Act has been set aside by theTribunal on the ground that the initial order passed by the AO was notprejudicial to the interest ofthe Revenue. 31.In view of above, the CIT-A has held that once the order undersection 263 has been set aside, the same material cannot be used fornotice under section 148 of the Act.However, neither the Tribunal hasgone into this question nor this case has been admitted on the same.Thus, we refrain from expressing our view on this point or any otherfindings recorded in favour of the Assessee by the CIT-A. ^ y .padma/amit 8 CONCLUSIONS 32. Our conclusion is, that sections 147/148 ofthe Act for reassessmentare not applicable to the assessment under Chapter XIVB of the Act. 33.In view of the above, the questions are answered in favour of theAssessee and against the Department. The tax case is dismissed. Sd/-Sd/-Manindra Mohan ShrivastavaChief JusticeJudge ,^::' ^ v HEADLINES Sections 147/148 of Income Tax Act not applicable to BIock assessmentunder Chapter XIVB of the Act.