Income Tax Act - For Block Assessment, Normals Procedure Not Applicable; Interest Can Be Levied Without Sec 158BC Notice : Supreme Court

A Bench comprising Justice M.R. Shah and Justice C.T. Ravikumar was considering a batch of petitions dealing with the same issue.

Factual Background

Since the Court was dealing with a batch of similar petitions, it only looked into the facts of the lead matter. The appellant was a Director Partner in a company. Upon a search under Section 132 was conducted at the residential premises of the family members of the company, warrants were issued. The appellant was served with a notice under Section 158BD to file return of income for block period of 01.04.1986 to 13.02.1997. The return was filed by including the undisclosed income for the block period. The Assessment Office, under Section 158BFA(1) levied interest on the tax amount for the period from 18.01.1998 and 19.01.1999. An appeal was filed assailing the levy of interest under Section 158BFA(1). The Commissioner of Income Tax dismissed the appeal and the said order came to be challenged before the ITAT, Bangalore. The appellant argued that in absence of any notice under Section 158BC, the Assessing Officer could not have levied the interest. It was also argued that in Section 158BD after the words “that Assessing Officer shall proceed” the words “under Section 158BC” was inserted by the Finance Act, 2002 and was to come in from 01.06.2002. Contending that the amendment was prospective and in the present case notice under Section 158BD was issued way back on 28.11.1997. The ITAT allowed the appeal. Aggrieved, the revenue approached the High Court, which reversed the order of ITAT.

Analysis by the Supreme Court

The Court looked into the reason, object and purpose of Chapter XIV-B, which deals with block assessments, in order to find out the reason for adding it. The Court noted that it lays down a special procedure for searched cases. The main reason for adding the provision was to curb tax evasion and expedite as well as simplify the assessment in searched cases. It observed that Chapter XIVB is a complete code in itself providing for self contained machinery for assessment of undisclosed income for the block period of 10 years or 6 years as the case may be. Thus, it inferred that for assessment of undisclosed income for the block period, the normal assessment proceedings under Section 140 of the Income Tax Act would not be applicable. The argument of the appellant that interest under Section 158BFA for the period prior to 01.06.1999 in view of insertion of the words “Section 158BC” in Section 140A w.e.f. 01.06.1999, shall not be chargeable was discarded, since the return under Section 158BC was required to be filed under Chapter XIV-B and on delay in filing the return there shall be liability to pay interest leviable under Section 158BFA(1). existing provisions of Section 140A were not applicable to Chapter XIVB relating to assessment of income of the block period in search and seizure cases.

On perusal of the Notes on Clauses appended to Clause 64 of the Finance Bill 2002 and other relevant documents it is evident that by way of the amendment the Legislature proposed to make the assessees who were filing return under Section 158BC also liable to pay tax and interest under Section 140A.

“Thus, by virtue of the amendment, a new class of assessee was brought onto the statute book whose income are subject to be assessed under Chapter XIVB, in section 140A compelling them to pay self assessment tax. Thus, the interest under Section 158BFA is leviable on standalone basis for late or non filing of return, which ceases on the day return is filed,” the Court held.

The submission of the appellant that in absence of any notice under Section 158BC, the Assessing Officer could not have levied the interest was also rejected. In this respect the Court observed -

“It is required to be noted that prior to amendment in Section 158BD vide Finance Act, 2002 and even thereafter, the provisions of Section 158BC would be applicable in case of “searched persons”. Section 158BD would be applicable in case of persons “other than searched persons”. Therefore, in case of a person “other than searched person”, no notice under Section 158BC which is required to be issued in case of “searched persons” was required to be issued. For a person “other than searched person”, notice under Section 158BD is sufficient.”

Case details

K.L. Swamy v. Commissioner of Income Tax And Anr.| 2023 LiveLaw (SC) 54 | CA 3704 OF 2012 | 13 Jan 2023 | Justice M.R. Shah and Justice C.T. Ravikumar

For Appellant(s) Mr. Senthil Jagadeesan, AOR

For Respondent(s) Mr. Balbir Singh, ASG Mr. Arijit Prasad, Sr. Adv. Mr. Rupesh Kumar, Adv. Mr. Prahlad Singh, Adv. Mr. H R Rao, Adv. Mrs. Shraddha Deshmukh, Adv. Mr. Raj Bahadur Yadav, AOR

Income Tax Act 1961-  Revenue justified in levying interest under Section 158BFA(1) of the Income Tax Act for late filing of the return for the block period even in absence of any notice under Section 158BC of the Act and for the period prior to 01.06.1999- Paras 10.3, 10.7

Income Tax Act 1961- Chapter XIVB is a complete code in itself providing for self contained machinery for assessment of undisclosed income for the block period of 10 years or 6 years as the case may be- for assessment of undisclosed income for the block period, the normal assessment proceedings under Section 140 of the Income Tax Act would not be applicable- Para 10.6

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