Search Assessment cannot be reopened u/s. 147 on the basis of same material

IN THE ITAT AGRA BENCH

Assistant Commissioner of Income-tax – 6, Jhansi

versus

Vidit Kumar Agarwal

IT APPEAL NO. 279 (AGRA) o f 2011

C.O. No. 57 (Agra) of 2011

[ASSESSMENT YEAR 1999-2000]

OCTOBER 12, 2012

ORDER

A.L. Gehlot, Accountant Member  

The appeal by the Revenue and the Cross Objection by the assessee have been filed against the order dated 31.03.2011 passed by the Ld. CIT(A)-II, Agra for the Assessment Year 1999-2000.

2. The grounds raised by the Revenue in its appeal are as under:-

“1.  The Ld Commissioner of Income Tax (Appeals) has erred in law and on facts in holding the initiation of proceedings u/s 147 in the case as bad in law void ab-initio without properly appreciating the facts & circumstances of the case.

 2.  That the ld Commissioner of Income Tax (Appeals) has erred in law and on facts in holding the initiation of proceedings u/s 147 in the case as bad in law, void ab-initio ignoring the fact that in the absence of any separate and specific period of limitation for reopening of block assessment in Chapter XIV-B, the provisions contained in Chapter XIV prescribing the period of limitation for reopening of assessment must be understood to be applicable to assessment under Chapter XIV-B.

 3.  That the ld. Commissioner of Income Tax (Appeals) has erred in law and on facts in holding the initiation of proceedings u/s 147 in the hands of individuals is justified in view of the ratio of decision of Hon’ble Guwahati High Court in the case of CIT v. Peer Chand Ratan Lal Baid HUF [2010] 322 ITR 544.

 4.  That the order of learned Commissioner of Income-tax (Appeals), Agra being erroneous in law and on facts deserves to be quashed and that of the Assessing Officer deserves to be restored.

 5.  That the appellant craves leave to add or alter any or more ground or grounds of appeal as may be deemed fit at the time of hearing of appeal.”

3. The grounds raised by the assessee in its Cross Objection are as under :-

“1. (a) Because as no valid proceedings u/s 147 read with section 148 of the Act has been initiated in the case of the respondent, thus in the light of facts and in law the learned CIT(A)-II, Agra has correctly annul the reassessment framed by the AO.

(b) Because in any view of the facts of the case of the respondent assessee and in the light of relevant provisions of law the reassessment proceedings initiated by AO are illegal, bad in law and abinitio void and thus correctly annulled by the learned CIT(A)-II, Agra.

2. Because the learned CIT(A)-II, Agra grossly erred and transgressed his jurisdiction to give direction at page 12 of the impugned appeal order to concerned Ranges Heads to explore the possibilities of initiation of penalty proceedings u/s 271D of the Act for alleged prima-facie violation of section 269SS of the Act, though the issue relating to penalty u/s 271D of the Act was not subject matter of appeal or even under consideration of AO or learned CIT(A)-II, Agra.

3. Because the direction made by the learned CIT(A)-II, Agra to the concerned Range Heads to explore the possibilities of initiation of penalty proceedings u/s 271D of the Act for alleged prima-facie violation of section 269SS of the Act being both against the facts and in law thus the same is illegal and bad in law.

The respondent seeks permission to modify and/or add any other ground/grounds of cross objection as the circumstances of the case might require or justify.”

4. The brief facts of the case are that on 03.06.1998 Police Authorities at Jhansi intercepted a car in which three persons namely Shri Ram Kishan Agarwal, Shri Vidit Kumar Agarwal (assessee) and Shri Deepak Agarwal were traveling. The Driver of the car was Shri Kamta Prasad Agarwal. On search of the vehicle, the Police authorities found cash of Rs. 32,34,600/- in three bags. The Police authorities recorded the statement of occupants of the car and the information was passed on to Income Tax Department. Consequently cash of Rs.32,34,600/- was requisitioned by the Department under section 132A of the Income Tax Act, 1961 (‘the Act’ hereinafter). As per the A.O. the assessment proceedings in the name of A.O.P. consisting of Shri Vidit Kumar Agarwal, Shri Ram Kishan Agarwal & Shri Deepak Agarwal were initiated under the provisions of Chapter XIVB of the Act. Thereafter all the three individual Shri Vidit Kumar Agarwal, Shri Ram Kishan Agarwal & Shri Deepak Agarwal filed Wit Petitions before the Hon’ble Allahabad High Court challenging the initiation of assessment proceedings. The Hon’ble High Court disposed of all these writs with the direction to the Department to decide as to whether the aforesaid amount which was seized was disclosed or undisclosed income of the petitioners and thereafter the Department should proceed in the matter. In consequence to the direction of the Hon’ble High Court, the DCIT, Circle-1, Jhansi passed an order dated 14.01.2000 and came to the conclusion that the seized amount was undisclosed income of these three persons from whose possession the cash was recovered and requisitioned under section 132A of the Act. Again the appellants filed second Writ Petitions before the Hon’ble High Court and the High Court dismissed the Writ Petitions holding that petitioners had the right to appeal under section 246A of the Act before the CIT(A). These three individuals filed appeal before the CIT(A) which was dismissed by the CIT(A). Again all the three persons filed Writ Petitions before the Hon’ble High Court. Again, the High Court dismissed the Writ Petitions holding that the appellant had right to appeal before the I.T.A.T.

5. Apart from the above proceedings, proceeding under section 158BC of the Act was initiated in the status of A.O.P. consisting of Shri Vidit Kumar Agarwal, Shri Ram Kishan Agarwal & Shri Deepak Agarwal. The assessment was made in the status of A.O.P. vide order dated 29.06.2000. The A.O.P. preferred appeal before the CIT(A). The CIT(A) vide his order dated 31.05.2002 held that the cash seized represented undisclosed income of the A.O.P. The A.O.P. further filed appeal before the I.T.A.T and the I.T.A.T. vide its order dated 20.01.2005 in IT(SS)A No.21/Agr/2002 allowed the appeal of A.O.P. by holding that the assessment in the status of A.O.P. was bad in law and, therefore, quashed the order passed under section 158BC of the Act. The relevant finding of I.T.A.T. which has been reproduced by the CIT(A) at page no.3 of his order from paragraph no.48 of the order of I.T.A.T. is as under :-

“So far as issue relating to assessee’s claim that cash belonging to three individuals stand explained by them, we are of the opinion that in view of above discussion, the issue, so far as present assessee is concerned, is only academic because whether the cash was explained or unexplained, the fact remains that action can be taken only in the hands of individuals and not in the hands of AOP.”

6. On receipt of I.T.A.T.’s order, the A.O. initiated proceedings under section 148 of the Act and made the assessment which is the impugned Assessment Order. The reasons for reopening recorded by the A.O. which is reproduced in Paper Book filed by the assessee at page nos.101 to 104 reads as under :-

“Reasons recorded u/s 147 of the Income-tax Act, 1961 in the case of Sri Vidit Kumar Agarwal, Behind Bandhu Press Sabun Gram, Mauranipur, Jhansi for A.Y. 1999-2000

According to brief facts of the case, on the night of 3.6.1998, Police Party at Jhansi intercepted a Maruti Car bearing Registration No.PB-08-T-8130 in which three persons namely Sri Ram Kishan Agarwal, Sri Vidit Kumar Agarwal and Sri Deepak Kumar Agarwal, in addition to the driver were travelling.

On checking by the Police, cash of Rs.32,34,600/- contained in three bags was found. The police had also found a slips from the possession of Sri Ram Kishan Agarwal containing the following details :-

The Police recorded the Statements of three persons namely Sri Ram Kishan Agarwal, Sri Vidit Kumar Agarwal and Sri Deepak Kumar Agarwal. On 3.6.1998 the Police informed the Income-tax Authorities at Jhansi who requisitioned the cash recovered under section 132A of the Act on the basis of authorization issued by the Director (Income-tax) Kanpur and issued notices under section 131 of the Act in the case of all the aforesaid three individuals on 3.6.1998. In their statements, all the three persons stated that they were carrying the cash so seized for the purpose of real state property through Sri Kailash Agarwal (Kamarya) to whom the cash was expected to be handed over. As regards to source of acquisition of the cash, Sri Deepak Agarwal stated that the cash of Rs. 8,34,600/- belongs to him. The remaining Rs. 16,00,000/- and Rs. 8,00,000/- was admitted by Sri Vidit Kumar Agarwal and Sri Ram Kishan Agarwal respectively as belongs to them. The statement of above named Sri Kailash Agarwal (Kamariya) was also recorded on oath on which he denied to have any connection with the cash seized and even knowledge of any land deal with them. In view of the above, block assessment proceedings were started u/s. 158 BC of the Income-tax, 1961. In the meantime, the assessee filed writ petitions before the Hon’ble High Court, Allahabad challenging the requisition order dated 4.6.1998 and prayed or the stay of the block assessment proceedings. The Hon’ble Allahabad High Court, vide orders dated 19.3.1999, directed that the department would first decide as to whether the cash seized was disclosed or undisclosed income of the petitioners and therefore, they shall be entitled to proceed in the matter.

Consequent upon these orders of the Hon’ble High Court, Allahabad, the block assessment proceedings were stayed for the time being and in compliance with the directions of the Hon’ble High Court, a speaking order dated 14.1.2000 was passed by the AO, whereby after making necessary inquiries and the material brought on record, it was held by the AO that the entire cash seized was undisclosed income of the persons, namely S/Sri Sri Vidit Kumar Agarwal Ram Kishan Agarwal, and Sri Deepak Kumar Agarwal (AOP). The appeals filed before CIT(A)-II against three orders dated 14.1.2000 have been dismissed, upholding the action of the AO, vide orders dated 21.7.2000 in Appeal No.CIT(A)-II/20 and 2l/Cir.I/Jhs/2000-0l/596 and 597. After passing the orders dated 14.1 2000 by the Id CIT(A)-II, orders u/s 158BC(C) of the Income-tax Act, 1961 were passed by the AO on 29.6.2000. During the course, the assessee moved petitions u/s. 144A of the Income-tax Act, 1961 which were decided by the Ld. JCIT, Range-2, Agra vide his order dated 29.6.2000, issuing directions u/s. 144A of the income-tax Act, 1961 to the AO that the sum of Rs. 40,76,000/- should be added as undisclosed income of the assessee (AOP).

Further from the perusal of the order of the Ld. CIT (A)-II, Agra dated 21.7.2000, in the Individual appeal of Sri Ram Kishan Agarwal, S/o. Sri Shiv Ram Agarwal, Gursarain, Jhansi has observed as under :-

“In the circumstances when there is no nexus established between cash withdrawals from the bank and amount available with the appellant on the date of search, it can only be said that these withdrawals have been only used as a convenient explanation to explain the cash found on 3.6.1998. Sine no nexus has been established between the cash withdrawn on various dates and the cash in the possessions of three persons on 3.6.1998, it can’t be said that it was the same money, merely on the basis of assessee’s claim. The AO has analysed in depth before coming the conclusion on 14.1.2000 that the money found in possession of three persons S/Sri Ram Kishan Agarwal (appellant), Sri Deepak Kumar Agarwal (AOP) and also Sri Vidit Kumar Agarwal was found unexplained sources. It, was, therefore, held as undisclosed income of these persons. As there is no error such conclusion of the AO, it is upheld”

On the perusal of order dated 20.01.2005 by Hon’ble ITAT, Agra Bench, Agra in Para No.7 of the order which is emerged as under :-

“In the statement recorded by the Learned ACIT, Sri Ram Kishan Agarwal has admitted that cash of Rs.8 lacs belonged to him, whereas cash amounting to Rs.l6 lacs belonged to Sri Vidit Kumar Agarwal, and cash amounting to Rs.8,34,600/- belonged to Sri Deepak Agarwal.”

Thus from the above, the Hon’ble ITAT has held that the cash so seize actually was belonging to the three individuals namely:-

  1.  Sri Ram Kishan Agarwal S/o Sri Shiv Ram Agarwal

  2.  Sri Vidit Kumar Agarwal

  3.  Sri Deepak Kumar Agarwal

The Hon’ble ITAT, Agra in the above order has further observed in Para No.42 on Page No.29 as under :-

“In view of the above discussion, we are of the opinion that there is OP and consequently no assessment could be frame in the status of AOP”

Again in Para No.37 on page No.26 of the above appellate order, it has further been observed that :-

“This aspect can further be considered in the light of evidences which was or could be available with the Director of Income-tax (Investigation), Kanpur and that evidence in the light of the facts and circumstances of the case could be as follows :-

(i)  Information from the Police authorities for having intercepting the car and recovered the cash in question contained in three bags.

(ii)  Statements of three concerned persons given before the police authorities and their admission to own their respective cash.

(iii)  Statements recorded by the ACIT, Jhansi on 03.6.1998 of all the three individuals wherein they had owned their respective cash and explained the source of the same.

Once again, in the same order in para No.47 & 48 at Page No.33 it has again been held by the Hon’ble ITAT, Agra as under :-

“Para 47. Even otherwise we are further of the opinion that the issue is squarely covered by the decision of Hon’ble High Court, Allahabad in the case of Jaiswal Motor Finance (Supra) because all the three individuals having accepted the cash as belonging to them or as theirs cash, no addition could be made in the hands of AOP”

Para 48. “So far as issue relating to the assessee’s claim that cash belonging to three individuals stand explained by them, we are of the opinion that in view of the above decision, this issue, so far as present assessee is conceded, is only academic because whether the cash was explained or unexplained, the fact remains that action can be taken only in the hands of individual and not in the hands of AOP”.

In view of the above facts, I have reason to believe that income of Rs. 16,00,000/- chargeable to tax has escaped to tax within the meaning of Section 147/150(1) of the Income-tax Act, 1961. In order to bring the income chargeable to tax under the tax net, approval may kindly be accorded to issue notice u/s 148 of the Income-tax Act, 1961.”

7. The assessee filed an appeal before the CIT(A) challenging the validity of reopening on the ground that in case of documents or any asset requisitioned under section 132A, then the A.O. shall proceed to assess the undisclosed income in accordance with the provisions of Chapter XIVB of the Act. The CIT(A), after considering the assessee’s submissions and various judgements and orders, found that the reassessment proceedings are void ab-initio. The relevant finding of CIT(A) is reproduced as below :-

“2.1 I have analysed the matter and I agree with the Ld. AR that where books of accounts, assets etc. have been requisitioned after 30.6.1995, the AO can only invoke the provisions of Chapter XIV B and cannot take action under the provisions of sec. 147 of the Act. I also agree with the Ld. AR that the Hon’ble ITAT while deciding the appeal in the case of the AO has not given any direction to the AO to initiate proceedings u/s 147 of the Act. I am of the opinion as the cash had been requisitioned u/s132A of the Act, therefore, the action had to be taken under the provisions of Chapter XIVB of the Act notwithstanding whether in the case of AOP or individuals. For this proportion of law reliance is placed on the judgement of Cargo Clearing Agency Gujrat v. JCIT (307 ITR 1) (Guj) the held portion of which reads as under :-

“When one considers the entire scheme relating to procedure for assessment/reassessment s laid down in the group of sections from sec.147 to sec.153 and compares the same with special procedure for assessment of search cases under Chapter XIVB it becomes apparent that the that the normal procedure laid down in Chapter XIV has been given a go bye when chapter XIVB itself lays down that the said chapter provides for a special procedure for assessment of search cases. The stand of revenue that sec. 158BH permits all other provisions of the Act to apply to assessment made under chapter XIVB does not merit acceptance. Sec. 158BH begins with the words ‘save as otherwise provided in this chapter. Therefore, before going to any other provision of the Act one has to consider whether any provision has been made in chapter XIVB which is dealing with the assessment of undisclosed income so as to warrant exclusion of other provisions of the Act. Not only this, the chapter heading indicates that the chapter is relatable to a distinct self contained procedure for assessment of search cases, and when one considers the relevant provisions of the chapter this becomes abundantly clear. On a plain reading of sec. 158BH it becomes apparent that once a provision has been made for assessment under chapter XIVB no other proviso of the act shall be applicable, but if there is no provision made in chapter XIVB all other provisions of the Act shall apply to assessment made under chapter XIVB. The sec, 158BH does not stipulate application of other provisions of the Act to an assessment to be made under chapter XIVB, but requires applicability of other provisions of the Act to an assessment already made under chapter XIVB. The said provision, by adopting the principle of incorporation, provides for applicability of other provisions of the Act to an assessment which is, already made to ensure that the machinery provisions, like provisions for recovery etc., have not to be engrafted in chapter XIVB, sec. 158BA opens with non obstante clause and provides that in a case of search initiated after 30th June, 1995 the AO shall proceed to assess the undisclosed income in accordance with provisions of chapter XIVB, notwithstanding anything contained in any other provisions of the Act. Therefore, provisions of sec. 158BA(1) have to be read in conjunction with sec. 158BH. The legislature has provided a special procedure for assessment of search cases and assessment has to be framed in accordance with the provisions of chapter XIVB. On a harmonious reading of both sec. 158BA and sec. 158BH, it becomes clear that only where a provision is not made in chapter XIVB providing for a special, procedure for assessment will other provisions of the Act be made applicable.”

Also, recently Hon’ble High Court of Kerala in the case of CIT v. Sivanandan (52 DTR) Ker. 428 held that once the AO proceeds to make block assessment u/s 1588C based on materials gathered during search u/s 132 he cannot proceed to make reassessment u/s 147 on the basis of same material. Reliance in this regard has been aptly placed by the Ld. AR, on the following case laws :-

 (i)  Mangal Singh, HUF v. ACIT 42 DTR 58 (Del)

(ii)  Western India Baker (P) Ltd. v. ACIT 87 ITD 607 (Mum.)

Following these judgements I hold that initiation of reassessment proceedings in both the cases was avoid ab-initio and, therefore, I annul the assessments framed by AO, in case of both the appellants. It is not considered necessary to adjudicate upon other grounds of appeal as I have annulled the assessments. However, the concerned Range Heads are directed to explore the possibilities of initiation of penalty proceedings u/s 271D of the Act as there is prima-facie violation of sec.269SS of the Act.”

8. We have heard the ld. Representatives of the parties and records perused. The issue under consideration is whether under the facts and circumstances of the case, the A.O. can initiate reopening proceedings under section 147 of the Act by issuing notice under section 148 dated 31.10.2005 where cash has been requisitioned under section 132A dated 30.06.1998 (block period 01.04.1988 to 04.06.1998) of the Act. To examine the issue, we would like to discuss some aspects of the relevant schemes of the Act. Chapter XIV of the Act, in juxtaposition, provides for procedure for assessment. Sections 147 of the Act deals with income escaped assessment. An Assessing Officer may assess or reassess any income chargeable to tax which has escaped assessment “for any assessment year” if the Assessing Officer has reason to believe that such income has escaped assessment. The power to assess or reassess such income and also any other income which is liable to tax and has escaped assessment is subject to the provisions of sections 148 to 153 of the Act. Under section 147 of the Act, the Assessing Officer is empowered not only to assess or reassess income which has escaped assessment but also recompute the loss or depreciation allowance or any other allowance, as the case may be. Explanation 2 to section 147 of the act lays down three classes of cases wherein it shall also be deemed to be a case where the income chargeable to tax has escaped assessment. Proviso to section 147 of the Act stipulates that no reassessment proceedings shall be commenced after the expiry of four years from the end of the relevant assessment year in a case where assessment has been framed under section 143(3) of the Act or under section 147 of the Act for the relevant assessment year, unless income has escaped assessment for such assessment year by reason of failure or omission to either to file return under section 139 of the Act, or in response to notice under section 142(1)or section 148 of the Act, or to disclose fully and truly all material facts necessary for the assessment of that assessment year.

8.1 Under section 148 of the Act, the Assessing Officer is required to serve on the assessee a notice requiring the assessee to furnish within the prescribed period a return of income, but even before issuing such notice under section 148 of the Act, the Assessing Officer is mandated under sub-section (2) of section 148 of the Act to record reasons. The return of income which an Assessing Officer may call for from an assessee is in relation to income which has escaped assessment, for which an assessee is assessable under the Act during the previous year corresponding to the relevant assessment year.

8.2 The Chapter XIV-B of the Act lays down a special procedure for assessment of search cases. When one considers the entire scheme relating to procedure for assessment/reassessment as laid down in the group of sections from section 147 to section 153 of the Act and compares the same with special procedure for assessment of search cases under Chapter XIV-B of the Act it becomes apparent that the normal procedure laid down in Chapter XIV of the Act has been given a go by. Under section 158B of the Act, “block period” and “undisclosed income” have been defined. Section 158BA of the Act opens with non obstante clause and provides that in a case of search initiated after June 30, 1995, the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of Chapter XIV-B of the Act, notwithstanding anything contained in any other provisions of the Act. Therefore, the provisions of section 158BA(1) of the Act have to be read in conjunction with section 158BH of the Act. The Legislature has provided a special procedure for assessment of search cases and assessment has to be framed in accordance with the provisions of Chapter XIV-B of the Act. On a harmonious reading of both sections 158BA and section 158BH of the Act it becomes clear that only where a provision is not made in Chapter XIV-B of the Act providing for a special procedure for assessment will other provisions of the Act be made applicable. Thus, on a plain reading of provisions of Chapter XIV-B of the Act, it becomes apparent that once a provision has been made for assessment under Chapter XIV-B of the Act, no other provision of the Act shall be applicable, but if there is no provision made in Chapter XIV-B of the Act, all other provisions of the Act shall apply to assessment made under Chapter XIV-B of the Act.

8.3 Section 158BB of the Act provides for modality of computation of undisclosed income of the block period. Such undisclosed income of the block period has to be the aggregate of the total income of the previous yeas falling within the block period. If the different aggregates which are provided for in clauses (a) to (f) are seen, it becomes clear that the computation of undisclosed income is first made in accordance with the provisions of the Act, thereafter reduction or increase as is provided in different clauses has to be made, and the Explanation indicates the exceptions. Clause (f) under sub section (1) of section 158BB of the Act provides for reducing the aggregate total income computed for the block period by the aggregate of the total income, in case where assessment for undisclosed income had been made earlier under clause (c) of section 158BC, on the basis of such assessment. In other words, it only means that where previous assessment has been framed under Chapter XIV-B of the Act the aggregate of such total income assessed for the block period in case of a search where block period is a different block period from the earlier block period, while assessing for a subsequent block period, such earlier aggregate has to be deducted. When this provision is read in the context of section 158BC, more particularly the first proviso thereunder, it becomes clear that the Legislature does not intend to reopen a block assessment. Any such interpretation would run counter to the legislative intent as noted hereinbefore from the contemporaneous exposition through the Memorandum Explaining the Finance Bill as well as various Circulars issued by the Central Board of Direct Taxes explaining different amendments.

8.4 Section 158BC of the Act itself indicates that where the Legislature wanted to incorporate other provisions of the Act a specific mention has been made, when a provision has been made for adopting sections 142, 143, 144 and 145 of the Act. Contra, where the Legislature does not want a provision, not falling within Chapter XIV-B of the Act, to be resorted to the two provisos under clause (a) of section 158BC of the Act have specifically made this clear. The first proviso stipulates that no notice under section 148 is required to be issued for the purpose of proceeding under Chapter XIV-B of the Act. The second proviso stipulates that person, who has already furnished a return under section 158BC (a) of the Act, shall be entitled to file a revised return as provided for in section 139(5) of the Act. Thus, these provisions are inherent indicators in the special procedure scheme to show that suction 158BH of the Act has limited application. There is one more aspect of the matter. Entire Chapter XIV-B of the Act relates to assessment of search cases, viz., undisclosed income found as a result of search. One cannot envisage escapement of undisclosed income once a search has taken place and material recovered, on processing of which undisclosed income is brought to tax. Section 147 of the Act itself indicate that the same is in relation to income escaping assessment and applies in a case where either income chargeable to tax has escaped assessment by virtue of either non-disclosure by way of non-filing of return, or non-disclosure by way of omission to disclose fully and truly all material facts for the purpose of assessment, or processing of material already available on record, if the same is within the stipulated period of limitation. Therefore, to contend that undisclosed income has escaped assessment despite an assessment having been framed under Chapter XIV-B of the Act by adopting the special procedure prescribed by the said Chapter is to contend what is inherently not possible. It cannot be a case of non-fling of return considering the provisions of section 158BC of the Act. It cannot be a case of non-disclosure of material facts considering the fact that everything which was undisclosed has already been unearthed at the time of search and the definition of “undisclosed income” itself indicates that not only what has been seized or recovered, but even income or property which has not been or would not have been disclosed for the purpose of the Act has been roped in. Furthermore, section 158BB of the Act also provides for not only for requisition of books of account or other documents, but on the basis of evidence found as a result of search and such other materials or information as are available with the Assessing Officer, undisclosed income of the block period shall be computed. Therefore, even if, assuming for the sake of argument, some income has not been disclosed in the return furnished under section 158BC of the Act, the Assessing Officer is bound to assess all undisclosed income after processing the entire material available with the Assessing Officer. The Assessing officer cannot be heard to state that undisclosed income has escaped assessment because the officer failed to apply his mind to the material available on record, there being no lack of disclosure.

8.5 To appreciate the issue, we would like refer some relevant judgments. Hon’ble Gujarat High Court in the case of Cargo Clearing Agency (Gujarat) v. JCIT, 307 ITR 1 (Guj) held as under: (page no.29)

“Thus, viewed from any angle, the stand of the Revenue does not merit acceptance. Once assessment has been framed under section 158BA of the Act in relation to undisclosed income for the block period as a result of search there is no question of the Assessing Officer issuing notice under section 148 of the Act for reopening such assessment as the said concept is abhorrent to the special scheme of assessment of undisclosed income of block period. At the cost of repetition it is required to be stated and emphasized that the first proviso under section 158BC(a) of the Act specifically provides that no notice under section 148 of the Act is required to be issued for the purpose of proceeding under Chapter XIV-B of the Act.

In the circumstances, the impugned notice dated April 16, 1999, under section 148 of the Act cannot be upheld and is hereby quashed and set aside.”

8.6 Hon’ble Kerala High Court in the case of CIT v. Sivanandan (52 DTR) Ker. 428 wherein it has been held that once the A.O. proceeds to make block assessment u/s. 158BC based on materials gathered during search u/s 132, he cannot proceed to make reassessment u/s 147 on the basis of same material.

8.7 The Hon’ble Guwahati High Court has considered the judgement of Hon’ble Gujarat High Court in the case of Cargo Clearing Agency (Gujarat) v. JCIT and observed that the view taken by the Hon’ble Gujarat High Court does not take care of situation that has arisen in the case before the Guwahati High Court. The Court has also examined section 158BC(a) of the Act including first proviso to section 158BC(a) of the Act. The relevant finding of the Court is reproduced as below :-

(322 ITR page no.557)

“The exclusion of section 148 by the first proviso to section 158BC(a) of the Act has been understood by us to be in the context of the notice that is required to be issued by the Assessing Officer following an action taken under section 132 and/or section 132A of the Act, as the case may be. Such notice, in the fact of a concluded assessment for any of the assessment years included in the block period, may partake of the character of reopening such an assessment, to clarify which the first proviso to section 158BC(a) has been inserted. The question that confronts the court in the present case is a stage after conclusion of the assessment for the block period whereas the aforesaid proviso deals with the stage of initiation of the block assessment proceeding.

Consequently and in the light of the foregoing discussions while dismissing the appeal of the Revenue we deed it proper and appropriate to record our conclusion that the provisions of section 147/148 will apply to an assessment for block period made under Chapter XIV-B of the Act. The appeal is consequently dismissed subject to our views as made above.”

8.8 Hon’ble M.P. High Court in case of Ramballabh Gupta v. ACIT & Others, 288 ITR 347 (M.P.) wherein it has been held that the A.O. does not have jurisdiction to issue notice under section 148 of the Act in respect of those 6 Assessment Years which falls within the exclusive jurisdiction of section 153A of the Act.

8.9 In the light of above discussion, if we consider the facts of the case under consideration, we notice from the admitted facts that the stage of impugned assessment is not an assessment made under section 147/148 of the Act after completion of block assessment but it is a case of original block assessment itself. Therefore, the judgement of Hon’ble Guwahati High Court relied upon by the Revenue does not help to the Revenue, rather this judgement is against the Revenue as the Court has clearly held that the proviso deals with the stage of initiation of block proceeding and the said proviso provides that no notice under section 148 is required to be issued for the purpose of proceedings under the Chapter XIV of the Act whereas in the case under consideration, the A.O. initiated proceedings under section 147 by issuing notice under section 148 of the Act for the A.Y. 1999-2000 which is a part of block period assessment and there was no original block period assessment. Under the facts and circumstances, the action taken by the A.O. is not in accordance with law. The material based on which the A.O. reopened the regular assessment is the material pertained to requisition under section 132A of the Act and such material is subject to only block assessment. The Hon’ble M.P. High Court in case of Ramballabh Gupta v. ACIT & Others, 288 ITR 347 (M.P.) wherein it has been held that the A.O. does not have jurisdiction to issue notice under section 148 of the Act in respect of those 6 Assessment Years which falls within the exclusive jurisdiction of section 153A of the Act. The Hon’ble High Court of Kerala in the case of CIT v. Sivanandan, 52 DTR Kerala 428 held that once the A.O. proceed to make block assessment under section 158BC based on material gathered during the search under section 132, he cannot proceed to make reassessment under section 147 on the basis of same material.

9. In the light of above discussions, the CIT(A) has rightly quashed the assessment order framed by the A.O. The order of the CIT(A) is confirmed on the issue.

Cross Objection No.57/Agr/2011 by the assessee

10. Ground no.1 of the Cross Objection is in support of order of the CIT(A).

11. Ground nos. 2 & 3 are in respect of some observation of CIT(A) directing the A.O. to explore the possibility of initiation of penalty proceedings under section 271D of the Act.

12. After hearing the ld. Representatives of the parties, we find that when the CIT(A) has annulled the assessment made by the A.O., under the circumstances, such unwarranted direction and observation are not required. Therefore, the same are deleted.

13. The assessee in it’s C.O. has raised some additional grounds which read as under : –

“1.  Because no valid reassessment proceedings u/s 147 read with sec. 148 of I.T. Act, 1961 have been initiated in case of the assessee.

 2.  Because in any view of the case of the assessee, the sources of cash amounting to Rs.16 lakhs requisitioned u/.s 132(A) of I.T. Act, 1961 by the department were beyond doubt explained and thus the learned AO has erred both in law and on facts in treating the same to be unexplained.

 3.  Because the learned CIT(A)-II, Agra has erred both in law and on facts in not adjudicating all grounds of appeal raised by the assessee in the appeal memo.”

14. The additional grounds raised in the Cross Objection are in respect of merit of the case. The CIT (A) has annulled the assessment on legal issue and mentioned that he did not consider it necessary to adjudicate upon other grounds of appeal. We have confirmed the order of CIT (A) on legal issue. Under the circumstances, we are also of the view that the CIT (A) has rightly held that the other grounds need not to be adjudicated upon. In the light of the facts, the additional grounds raised are dismissed, as the legal issue has been decided in favour of the assessee.

15. In the result, appeal of Revenue is dismissed and Cross Objection of the assessee is partly allowed, as discussed above.