IMPORTANT POINT
For a block assessment in terms of Section 158BC in respect of any other person, the conditions precedents wherefor are: (i) Satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 of the Act; (ii) The books of account or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction over such other person; and (iii) The Assessing Officer has proceeded under Section 158BC against such other person.

Headnote:Income Tax Act, 1961—Sections 158BC, 158BD & 132—Block Assessment—Undisclosed income of any other person—Condition precedent for invoking block assessment is that a search had been conducted u/s 132A of the Act or documents or assets were requisitioned u/s 132A of the Act—Recourse to block assessment in terms of Section 158BC in respect of any other person—Conditions precedents—Satisfaction must be recorded by Assessing Officer that any undisclosed income belonged to any person other that one with respect to whom search was made and books of accounts or assets seized were handed over to Assessing Officer having jurisdiction over such other person—Search was conducted in premises of person who was one of Directors of assessee company—Several incriminating documents relating to business of company were seized—Proceedings were initiated against company u/s 158BC of the Act and assessment order was passed—Tribunal set aside order holding that Assessing Officer had no jurisdiction to proceed against assessee for block assessment—High Court reversed the order—Appeal—Notice issued in terms of Section 158BD did not record any satisfaction on part of Assessing Officer—Documents and assets recovered during search were not handed over to Assessing Officer having jurisdiction in the matter—No proceedings u/s 158BC were initiated—Impugned judgment of High Court could not be sustained.
       Held : Condition precedent for invoking a block assessment is that a search has been conducted under Section 132, or documents or assets have been requisitioned under Section 132A. The said provision would apply in the case of any person in respect of whom search has been carried out under Section 132A or documents or assets have been requisitioned under Section 132A. Section 158BD, however, provides for taking recourse to a block assessment in terms of Section 158BC in respect of any other person, the conditions precedents wherefor are: (i) Satisfaction must be recorded by the Assessing Officer that any undisclosed income belongs to any person, other than the person with respect to whom search was made under Section 132 of the Act; (ii) The books of account or other documents or assets seized or requisitioned had been handed over to the Assessing Officer having jurisdiction over such other person; and (iii) The Assessing Officer has proceeded under Section 158BC against such other person. (Para 11)
       The conditions precedent for invoking the provisions of Section 158BD, thus, are required to be satisfied before the provisions of the said chapter are applied in relation to any person other than the person whose premises had been searched or whose documents and other assets had been requisitioned under Section 132A of the Act.(Para 12)
       The only question which arises for our consideration is as to whether the notice dated 06.02.1996 satisfies the requirements of Section 158BD of the Act. The said notice does not record any satisfaction on the part of the Assessing Officer. Documents and other assets recovered during search had not been handed over to the Assessing Officer having jurisdiction in the matter.(Para 16)
       No proceeding under Section 158BC had been initiated. There is, thus, a patent non-application of mind. A prescribed form had been utilized. Even the status of the assessee had not been specified. It had only been mentioned that the search was conducted in the month of November 1995. No other information had been furnished. The provisions contained in Chapter XIVB are drastic in nature. It has draconian consequences. Such a proceeding can be initiated, it would bear repetition to state, only if a raid is conducted. When the provisions are attracted, legal presumptions are raised against the assessee. The burden shifts on the assessee. Audited accounts for a period of ten years may have to be reopened.(Para 17)
       As the Assessing Officer has not recorded its satisfaction, which is mandatory; nor has it transferred the case to the Assessing Officer having jurisdiction over the matter, we are of the opinion that the impugned judgments of the High Court cannot be sustained, which are set aside accordingly. The appeals are allowed.(Para 22)

JUDGMENT

S.B. Sinha, J.—Leave granted.

2. Interpretation of the provision Section 158BC of the Income Tax Act, 1961 (for short, ‘the Act’) is in question in these appeals which arise out of judgments and orders dated 28.09.2004 and 14.03.2005 passed by a Division Bench of the Indore Bench of the Madhya Pradesh High Court in I.T.A. Nos. 60 and 105 of 1999.

3. Before embarking on legal issues, we may notice the fact of matter from Civil Appeal arising out of Special Leave Petition (Civil) No.9751 of 2005.

4. The assessee ‘M/s Indore Construction Company (Pvt.) Ltd.’ (for short, ‘the Company’) is a company registered and incorporated under the Companies Act, 1956 (for short, ‘the Act’). One Shri Rameshwar Maheshwari is of one of its Directors. Shri Maheshwari, apart from being a Director of the said Company, is also a tax consultant. A search was conducted, as contemplated under Section 132 of the Act, in the premises of the said Maheshwari and his wife Smt. Lalita Devi on 21.11.1995. Several incriminating documents relating to the business of the Company were seized. A proceeding was initiated against the Company purported to be under Section 158BC of the Act. The order of assessment was passed on 29.11.1996. The Tribunal in an appeal preferred by the assessee thereagainst opined that the Assessing Officer had no jurisdiction to proceed against the assessee for making the block assessments in terms of Chapter XIV-B of the Act, as no search was conducted in terms of Section 132 of the Act, stating :

“28. Perusal of the assessment order would go to reveal that the A.O. did not do so. Instead of determining the undisclosed income on the basis of the materials seized from the residence of the Co’s Director, he embarked upon a roving enquiry in respect of completed assessments by referring three apartments to the Valuation Cell ‘to ascertain the correct investment made by the assessee’ and on receipt of the reports of the Valuation Cell proceeded to compute the income u/s 69 as unexplained investment, adding thereto further undisclosed profit earned on sale of flats. To our mind, what the A.O. did is beyond the scope of sec. 158BD. No addition can be made in any of the assessment year of the block period regarding which no material or information is available with the A.O. In a case, where any material or information is found during search, the A.O. has to co-relate such material/information with regard to the regular assessment which have already been completed. At the cost of repetition we may state that Chapter XIV-B does not authorize the A.O. to review the assessment competed unless and until there is any direct or indirect or clinching evidence to indicate that the assessee has withheld or had not disclosed any income. No additions can be made merely on the basis of presumption or hypothesis. This is what the A.O. had actual done.”

5. An appeal preferred by the respondent herein before the High Court, as noticed hereinbefore, thereagainst under Section 260-A of the Act, has been allowed, holding that the Assessing Officer had the requisite jurisdiction in terms of Section 158BD of the Act read with Section 2(31) thereof. The Block Assessment Period is 1987-88 to 1995-96. The search was conducted on 21.11.1995, wherefor a warrant of authorization was issued on 15.10.1995 in the following terms :

“If a summons under sub-section (1) of section 131 of the Income Tax Act, 1961 or under sub section (1) of section 142 of the Income Tax Act, 1961 is issued to Shri Rameshwar R. Maheshwari, Smt. Lalita Devi.

To produce, or cause to be produced, books of accounts or other documents of the institution or relevant proceedings under the Income Tax Act, 1961 he would not produce or cause to be produced, such books of accounts or other documents as required.

Shri Rameshwar H. Maheswari, Smt. Lalita Devi.

any person is in possession of any money, bullion, jewellery or other valuable article or things and such money, bullion, jewellery or other val

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2007 Supreme(SC) 255

Cases Referred (6)