The main legal point established in the judgment is the interpretation of the provisions of the Income Tax Act, particularly regarding the definition of undisclosed income under Chapter XIV-B and the validity of block assessments for undisclosed income.

Chitra Venkataraman, J.

1. The assessees are on appeal as against the common order of the Income Tax Appellate Tribunal, "D" Bench dated 28.03.2005 passed in IT(SS)A No.168/Mds/04 to IT (SS)A No.177/Mds/04 for the block assessment period 1990-91 to 2000-01, raising the following questions of law:

“1. Whether on the facts and in the circumstances of the case, the Appellate Tribunal is right in law in holding that the salary and interest paid to partners are undisclosed income in the hands of the partner appellant?

2. Whether the Tribunal was right in holding that there is no legal requirement of giving any opportunity of being heard before recording satisfaction under Section 158 BD of the Act?

3. Whether the Tribunal was not right in holding that there were adequate materials to justify that there was undisclosed income in the hands of the appellant partner?”

2. The issues are common. The Income Tax Appellate Tribunal had also considered the assessees appeals relating to the Block Assessment period 01.04.1989 to 19.01.2000 and passed a common order in respect of the different assessee's herein.

3. It is seen from the facts narrated that on 19.01.2000, there was a search and seizure operation at the residence and the business premises of one P.Subramani and his group concerns including M/s.Sugajothi Tex conducted under Section 132 of the Income Tax Act, 1961. Admittedly, the assessees were the partners in M/s.Sugajothi Tex and they were filing regular returns of income upto the assessment year 1994-95. For the period from 1995-96 to 2000-2001 comprising the Block Period from 01.04.1989 to 19.01.2000, long after the date of search on 19.01.2000 the assessees filed their returns on 05.01.2001. Based on the materials seized, notices under Section 158 BD read with 158 BC of the Income Tax Act, 1961 were issued to the assessees. The assessees' claimed that the entire income of these assessment years could not be included as undisclosed income for the block period while completing the block assessments on the ground that even before the issuance of the notices, the assessees had filed their respective return of income. The Assessing Officer, however, rejected the contention on the ground that the returns were filed only after the date of search, i.e.on 19.01.2000. Having regard to the notices issued under Section 158 BB(ca) of the Act, the income was liable to be included in the Block Period mentioned above.

4. One of the issues raised by the assessees in the course of the appeal proceedings was that the Officer had not recorded his satisfaction for issuing the notices under 158 BD of the Act and in any event the assessees could have been given an opportunity of hearing before proceeding further. The First Appellate Authority rejected the said plea of the assessees and ultimately confirmed the assessment in respect of the assessees.

5. Aggrieved by this, the assessees went on appeal before the Income Tax Appellate Tribunal. As already pointed out in the preceding paragraphs, the Income Tax Appellate Tribunal passed a common order covering the cases of all the assessees, confirming the assessment.

6. One of the contentions taken by the assessees before the Income Tax Appellate Tribunal was that when in respect of the firm assessment, the salary and interest paid to the partners were already disclosed within the time allowed for filing the return, the same could not be the subject matter of undisclosed income under Chapter XIV B of the Act. These are for the individual assessments. Though the returns were filed belatedly, they were filed before the issuance of notice under Section 158BD of the Act. Hence, the Block Assessment made was without jurisdiction. The Income Tax Appellate Tribunal, however, rejected the plea of the assessees and pointed out that the assessees had not filed the returns of income before the date of search. Thus, the income disclosed in the returns filed after the date of search could not be treated as