INCOME TAX ACT, 1961

Search and seizure- Block assessment-Addition under block assessment vis-a-vis-regular assessment-Undisclosed silver jewellery

Assessee was found to be in possession of silver jewellery. AO seized the same under warrant of authorization issued under section 132A and issued notice under section 158BC, as the assessee could not properly explain source of its acquisition. The assessee filed return for block period surrendering some quantity of silver ornaments for taxation. AO treated certain quantity of silver ornaments as unexplained and the balance as explained and assessed the value of unexplained silver ornaments as undisclosed income of the assessee. The assessee also filed his regular returns for assessment years 1994-95 to 1997-98, disclosing income from business of silver ornaments on labour basis. Besides, it disclosed four cash loans for the assessment year 1996-97. While observing that those returns were filed by the assessee after the search, AO treated income disclosed in those returns as undisclosed income of the assessee and included the same in the assessment of the undisclosed income for the block period. The assessee sought deletion of the amounts disclosed in his regular returns on the ground that said income was not detected during the course of search or as a result of search. He also disputed correctness of notice issued under section 158BC on grounds of the status of the assessee having not been mentioned therein and the block period having been wrongly mentioned. Further, he submitted that AO did not issue any notice under section 143(2). Held: While making an order under section 158BC, AO does not have the same jurisdiction that he has while assessing the income of an assessee under the general provisions of the Act. Under the provisions of section 158BC, AO can bring to assessment only that undisclosed income, which has a nexus with the evidence found as a result of search or requisition of such other materials or information as are available with AO and relatable to such evidence. In the regular assessment under section 143(3), AO is empowered to bring to assessment any income chargeable to tax under the provisions of the Act. In the present case, it was not the case of AO and/or CIT (A) that the income returned by the assessee in belated returns had already been unearthed or detected during the course of requisition under section 132A. Even the amount of cash credits surrendered by the assessee, particularly of four loans, were found not as a result of search but as a result of subsequent enquiries made by AO after the search. Therefore, the said amounts were required to be excluded from the block assessment proceedings for the short reason that they did not belong to block assessment proceedings in the first instance. In the case of a person searched, there has to be block assessment as well as regular assessment and the income pertaining to regular assessment alone cannot be included in the block assessment proceedings. The assessee had disputed correctness of notice under section 158BC on the twin grounds of the status of the assessee not having been mentioned therein and the block period having been wrongly mentioned. However, he did not want any curative steps in relation to the alleged defects in the notice under section 158BC and he admitted that the order under section 158BC had been made in the correct status and for the correct block period. Where proceedings are initiated against the correct person, a misdescription of his status in notice is not material. Hence, the submission of the assessee that he did not know exactly as to which capacity of his was under investigation and, therefore, the notice was illegal, was not maintainable. In the present case, apart from innocuous mistakes, no prejudice had been caused to the assessee. Therefore, the assessee had rightly submitted that in the event, the impugned orders not being found to be void ab initio, no further curative steps might be taken. Point to be considered is that an assessment proceeding can not cease to be a proceeding under the Act merely by reason of want of notice. It will be proceeding liable to be challenged and corrected. In the present case, there being no prejudice, the impugned order under section 158BC could be treated as having been made in lawful manner within the meaning of section 292B. According to the assessment order, it was seen that the assessee appeared before AO through his authorized representative from time to time and various aspects of the case were discussed. The assessee was accorded full opportunity to produce or cause to be produced any evidence on which the assessee would rely in support of the return under section 158BC. The assessee was given full opportunity to substantiate all his claims. Thus, the want of issue of notice under section 143(2) on the part of AO, if there was indeed any such lapse, was only a procedural error to be cured by suitable directions to AO. There was no prejudice to the assessee and the assessee had himself requested that no curative steps be taken. Hence, no further action appeared to be necessary.