1. This appeal is directed against the impugned order and judgment dated February 23, 1999 (see [1999] 238 1TR 13). The Revenue appellant has raised the grievance that the learned single judge has wrongly held the notices under Section 142 and Section 143(2) of the Income-tax Act, 1961 (hereinafter called "the Act 1961") bad in law and set aside the assessment of the assessment year 1995-96 and further directed that the regular assessment for the assessment year 1995-96 shall be completed within six months of finalisation of the block assessment on the basis of the returns filed by the assessee for that assessment year and while making an adjustment in the block income assessed for the assessment year 1995-96, the Assessing Officer should accept the return for the assessment year 1995-96, except to correct some arithmetical mistakes or clerical mistake as allowed under Section 143(1) of the Act of 1961. On August 27, 1996, a search was conducted at the office premises of the asses-see-company under Section 132 of the Act of 1961, in the course of which various documents and records were seized. On November 28, 1997, the Assessing Officer passed the order of block assessment for the assessment year 1986-87 to August 27, 1996. That the said block assessment includes part of the assessment year 1995-96 for which the return was filed before the date of search was pending before the Assessing Officer.
2. The Assessing Officer after completing the block assessment issued the notice under sections 142(1) and 143(2) for the assessment year 1995-96 to complete the regular assessment. Those notices were challenged by way of Writ Petition No. 443 of 1998 (see [1999] 238 ITR 13). The learned single judge has allowed the petition directing not to proceed with the notices under sections 142(1) and 143(2).
3. While considering the various arguments, the learned single judge has observed in his judgment that once the two total incomes under Section 158BB are computed, no further scope remains for the Assessing Officer to make any further computation for the concerned assessment year either for the purpose of imposition of tax on the undisclosed income or for the purpose of making the regular assessment. That the regular assessment for the assessment year pending and falling within the block period must be on the basis of the return filed under Section 139 and on no other basis save and except adjustment of arithmetical errors or matters beyond doubt and dispute. That computation of the second total income under Section 158BB binds the Assessing Officer for making the assessment of tax in regular assessment under Section 143(3) and the Assessing Officer had no jurisdiction to arrive at one computation of the second total income under Section 158BB, at least in so far as Section 158BB(1)(b) and to arrive at a different computation of total income for the purpose of Section 143(3). That it is not possible to permit the Assessing Officer to have free play as regards completion of filed returns in regard to the assessment years included in the block period. That block assessment must precede regular assessment and only after completion of the block assessment to make the regular assessment under Section 143(3) on the basis of the return filed. Prior to making block assessment regular assessment is ruled out.
4. That the Assessing Officer might convert the pending return in any other manner than on the basis of the return under Section 158BB. The Assessing Officer might convert the pending return into the assessed return, thereby causing no prejudice either to the Revenue or to the asses-see. The Assessing Officer, to save limitation even before the block assessment, can make the regular assessment for unassessed return in an exceptional case, but on the basis of the return itself without entering into scrutiny. That notices under Section 142 and Section 143(2) were bad in law, since these notices should not have been issued in regard to the regular assessment. That block assessment would have to be completed first and thereafter, regular assessment to be made within six months of fina-lisation of the block assessment on the basis of making practically an ex parte assessment. That upon holdings the learned judge by his order set aside the regular assessment for the year 1995-96 and rendered the appeal, pending therefrom before the Commissioner of Income-tax (Appeals) as infructuous.
5. Heard learned counsel for the parties. They are also allowed to file written submissions, time was allowed to file the written submission by the first week of November, 2000. Both the parties filed written submissions.
6. Learned counsel for the appellant, Mr. Shah, submits that Chapter XIV-B of the Act of 1961, deals with the assessment of undisclosed income. As a result of search, the undisclosed income for block period is assessable under the provisions of Chapter XIV-B of the Act of 1961. Section 158B(b) defines "undisclosed income" but assessment for block assessment is only of undisclosed income of the block period. If any return is filed for regular assessment for any period of the block period, the Assessing Officer can proceed with assessing the regular income of the assessee under the regular provisions of this Act.
7. But while computing the undisclosed income under Chapter XIV-B, the return pending cannot be disturbed in computing the undisclosed income for the block period. He further submits that the undisclosed income assessable under Chapter XIV-B of the Act of 1961, is on the basis of material seized during the search but the income declared or disclosed in the regular returns cannot be assessed under Chapter XIV-B of the Act. The rate of tax and penalty, etc., are different under this Act for the purpose of taxing undisclosed income and disclosed income of the assessee. He further submits that the dispute created by two sets of judgment that the Gujarat High Court and the subsequent decision of the Kerala High Court is on the one hand and a decision of the Punjab and Haryana High Court and also the decision of the Kerala High Court in N. T. John v. CAT on the other hand.
8. That doubt has been removed by an insertion of the Explanation by the Finance (No. 2) Act, 1998, and it is clarified in the Explanation that the assessment made under Chapter XIV-B shall be in addition to the regular assessment in respect of each previous year included in the block period.
9. The total undisclosed income relating to the block period shall not include the income assessed in any regular assessment, as income of such block period. He placed reliance on the judgment of this court in support of his contentions, i.e., in Caltradeco Steel Sales (P.) Ltd. v. Deputy CIT and the decision of the Gujarat High Court in N. R. Paper and. Board Ltd. v. Deputy CIT . In Malayil Bankers v. Asst. , the earlier decision of the Kerala High Court in N. T. John v. CIT , has been overruled by the Kerala High Court.
10. On the other hand, learned counsel for the assessee, Shri Bajoria submits that while making the assessment under Chapter XIV-B, "the undisclosed income" should be computed as per the provisions of Section 158BB of the Act of 1961 and the total income assessed and computed and the income assessed for the block period and computed as per the provisions of Section 158BB that be reduced by the aggregate of the total income or, as the case may be, increased by the aggregate of the losses of such previous year determined. Such as where the assessments of income under Section 143, 144 or under Section 147 have been concluded, on the basis of such assessment. Where the returns of income have been filed under Section 139 or Section 147 but assessments have not been made till the date of search or requisition, on the basis of the income disclosed in such returns. Where the due date for filing of the return has expired but no return of income has been filed, as nil.
11. Shri Bajoria learned counsel for the assessee, therefore, submits that there cannot be two assessments for the income of the particular period and when in the block assessment, the income has been assessed, the Assessing Officer has no jurisdiction to proceed with the regular assessment on the basis of the return filed for a particular year in the block period.
12. Shri Bajoria mainly stressed on the provision of Section 158BB, which provides for computation of income. In computing the income for the block period, how to adjust the assessed income or income, in a case where assessment is pending at the time of search. He submits that, there should be one assessment for the block period, which includes the asses-
sed income and the income disclosed in the return under Section 139. where the assessment is pending for that year. According to him if some return of income of block period is pending that cannot be proceeded and whatever income declared that should be accepted. He further submits that to that extent that income be reduced from the total income assessed for the block period, under Chapter XIV-B of the Act of 1961.
13. He relied on the decision of the Punjab and Haryana High Court in Raja Ram Kulwant Rai v. Asst. CIT .
14. Considering the aforesaid facts and the decision referred to above the limited controversy before us is whether the Assessing Officer can issue a notice under Section 143(2) and under Section 142 of the Act of 1961, while the block assessment is pending, for assessing the income, for a "block period" under Chapter XIV-B of the Act of 1961.
15. Before going into the merits of the arguments of Mr. Bajoria we deem it proper to refer to the views expressed by different High Courts on this issue. In the case of N. R. Puper and Board Limited. v. Deputy CIT , the Gujarat High Court had an occasion to consider the question whether the Assessing Officer can issue notice under Section 143(2) of the Act of 1961 for assessment under Section 143(3) of the Act of 1961, for a period of assessment year 1995-96, which forms part of the block period. The view has been taken by the Gujarat High Court that the notices issued under Section 143(2) of the Act of 1961 were in respect of the regular assessment and the Assessing Officer was within his jurisdiction to proceed with the same for the purpose of assessing the regular income/loss of the previous year relevant to the assessment year 1995-96, while the assessment of the undisclosed income was already made and was the subject-matter of challenge before the Tribunal. The view has been taken by the Gujarat High Court that the Assessing Officer had jurisdiction to proceed with the regular assessment for the assessment year 1995-96.
16. The Gujarat High Court has not followed the view taken by the Punjab and Haryana High Court in the case of Raja Ram Kulwant Rai , and the view taken by the Kerala High Court in N. T. John v. CIT . It is pertinent to note that the facts of this case are akin to the facts in the case before the Gujarat High Court.
17. In the case of Raja Ram Kulwant Rai , the Punjab and Haryana High Court has taken the view that Section 158BA starts with the non obstante clause, i.e., notwithstanding anything contained in any other provisions of the Act, the cases arising out of search and seizure under Section 132 of the Act shall be assessed in accordance with the newly introduced Chapter XIV-B in respect of the block period. The High Court held that when the income of the assessment years 1988-89 and 1989-90 did not remain to be determined after the assessment of the income of that period. All pending assessments of those years merged in the collective assessment under Section 158BC(c). Therefore, notices issued under Section 148 prior to the search were rendered infructuous. Therefore, the Department could not proceed on the basis of notices under Section 148, when the notice under Section 148 is prior to the framing of assessment under Chapter XIV-B. The notices issued under Section 143(2) were not valid and were liable to be quashed.
18. In Raja Ram Kulwant's case , though they have quashed the notice under Section 148 of the Act, but a finding has been given that the total income of the block period that is disclosed and undisclosed has been assessed and nothing remained to be determined. To that extent there may not be a regular assessment, but if any part of income escaped assessment in that case regular assessment is necessary.
19. In the case of N. T. John , the Kerala High Court has held that "block period" means the period of ten years preceding the previous year in which the search was conducted under Section 132 of the Act of 1961 and when the assessment year 1993-94 was one of the previous years of the block period, the special procedure for assessing the income under Chapter XIV-B is applicable. Therefore, it was not proper to issue notice for regular assessment for the year 1993-94.
20. In a subsequent decision in the case of Malayil Bankers , the Kerala High Court has overruled its earlier decision in the case of N. T. John . Considering the Explanation inserted in Section 158BA, the Kerala High Court has taken the view that the assessment under Chapter XIV-B is in addition to regular assessment.
21. Chapter XIV-B relates to "undisclosed income" of the block period. Therefore, the Income-tax Officer is not barred from framing the assessment under Section 143 of the Act of 1961. Even this High Court in the case of Caltradeco Steel Sales (P.) Ltd. v. Deputy CIT [2000] 243 ITR 643 has taken the same view that the Chapter XIV-B is a procedure for assessing and computing the "undisclosed income" and that does not bar the assessment of regular income, assessable on the basis of the return filed and when there is an assessment of two types of income that is one for "undisclosed income" and the other for "disclosed income", proceedings for assessing both types of income can go on simultaneously.
22. From the aforesaid discussion it is made clear that before the insertion of the Explanation two types of views have been expressed by different High Courts that is the Gujarat High Court had the view that there can be an assessment on the basis of the return filed under Section 139 of the Act of 1961, though the period may come within the block period, as Chapter XIV-B provides the procedure for assessing and computing the "undisclosed income" only. In addition to that there can be an assessment on the basis of the return filed under Section 139. The Punjab and Haryana High Court has taken the view that when the total income of the block period is assessed under Chapter XIV-B no income remained to be determined in pursuance of notice under Section 148 of the Act of 1961. The Kerala High Court though in the earlier judgment that is N. T. John's case , had the same view as has been taken by the Punjab and Haryana High Court but subsequently while considering the Explanation to Section 158BA the Kerala High Court in Malayil Bankers' case has held that there can be an assessment under Section 143(3), in addition to the assessment of his income in a block period under Chapter XIV-B of the Act of 1961.
23. Thus, the Gujarat High Court, Kerala High Court and this High Court has taken the view that there can be a regular assessment in the block period in addition to the assessment under Chapter XIV-B of the undisclosed income of the block period.
24. However, the Punjab and Haryana High Court has quashed the notice under Section 148 on the basis that when the total income has been assessed, i.e., disclosed and "undisclosed income", nothing remained for determination of any income.
25. On the facts before the Punjab and Haryana High Court, i.e., that the total income was assessed, nothing remained to determine, in fact no serious controversy was there on this issue between the views of two sets of High Courts, but even that has been set at rest by the insertion of the Explanation in Section 158BA of the Act of 1961. The Explanation, inter alia, provides that the assessment made under Chapter XIV-B shall be in addition to the regular assessment in respect of each previous year included in the block period.
26. For undisclosed income no doubt the provisions of Chapter XIV-B are applicable, whether income disclosed in the return can be assessed under Chapter XIV-B, for that we have to see the definition of "undisclosed income". The "undisclosed income" has been defined in Clause (b) of Section 158B of the Act of 1961 which provides as under :
"(b) 'undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act."
27. In fact the only question for our consideration is whether the Assessing Officer can proceed with the assessment under Section 143(3), on the basis of the return filed under Section 139 for the assessment year 1995-96. as per the provisions of this Chapter XIV-B.
28. Clause (b) of Sub-section (1) of Section 158BB provides that while computing the undisclosed income of the block period where returns of income have been filed under Section 139 or Section 147, but assessments have not been made till the date of search or requisition, income can be reduced on the basis of the income disclosed in such return.
29. Now the question does arise whether on the basis of such return, the income disclosed should be assessed in the assessment under Section 143(3) or should be assessed under the provisions of Chapter XIV-B or no income should be assessed on the basis of such return pending on the date of search under Section 132 of the Act of 1961.
30. Broadly speaking there are three types of income to be assessed for tax, i.e., disclosed income in the return, undisclosed income and the income added on scrutiny of the return in due course of assessment under Section 143(3) of the Act.
31. The return filed under Section 139 before search and pending before the Assessing Officer, assessment yet to complete. If no assessment is made on scrutiny of the return some income may escape assessment. The assessee might claimed bogus expenditure, bogus cash credits or even wrong deductions which are not permissible under the Act.
32. In that way assessable income will escape and the Government will deprived of tax due on such income. The return under Section 139 cannot be processed in the block assessment. Firstly, in the block assessment under Chapter XIV-B only for "undisclosed income" and tax rate for undisclosed income and disclosed income in the return is different. How the income assessed in pursuance of a return can be taxed at higher rate ?
33. This will also not fit in with logic that in some of the years of block period where the assessment are completed normal rate of tax will be paid and in one year though the return is filed before search but assessment is not made under Chapter XIV-B, the tax will be at a higher rate.
34. If we accept the submission of Mr. Bajoria that return pending on the date of search can be processed under the provisions of Chapter IV of the Act, in that case why there should not be a regular assessment under Section 143(3) why that return should be processed under the provision of Chapter XIV-B.
35. Therefore, in either of the cases if the return filed under Section 139 pending on the date of search and not proceeded to complete the assessment under Section 143(3), there is every possibility of escapement of income under the scheme of the Act. That cannot be the intention of the Legislature. This type of income can only be assessed in the regular assessment under Section 143(3).
36. When there is some conflict in the provisions of the Act to give effect to the intention of the Legislature the provision should be construed in a way and in conformity with the object of the Act which is sought to he achieved.
37. In such a case, in construing the provision, the interpretation should be in a way as to give effect to the true intention of Parliament.
38. How the provision should be construed when there is some conflict in the same provision. Their Lordships have considered and observed at page 648 in the case of CIT v. Podar Cement Pvt. Ltd. , which reads as under :
"In construing an ongoing Act, the interpreter is to presume that Parliament intended the Act to be applied at any future time in such a way as to give effect to the true original intention. Accordingly the interpreter is to make allowances for any relevant changes that have occurred, since the Act's passing, in law, social conditions, technology the meaning of words, and other matters. Just as the US Constitution is regarded as 'a living Constitution', so an ongoing British Act is regarded as a 'living Act'. That today's construction involves the supposition that Parliament was catering long ago for a state of affairs that did not then exist is no argument against that construction. Parliament, in the wording of an enactment, is expected to anticipate temporal developments. The drafter will try to foresee the future, and allow for it in the wording.
An enactment of former days is thus to be read today, in the light of dynamic processing received over the years, with such modification of the current meaning of its language as will now give effect to the original legislative intention. The reality and effect of dynamic processing provides the gradual adjustment. It is constituted by judicial interpretation, year in and year out. It also comprises processing by executive officials."
39. In the case of K. P. Vargkese v. ITO , after quoting the words of Lord Denning their Lordships observed as under at page 604 :
"The primary objection against the literal construction of
Section 52, Sub-section (2), is that it leads to manifestly unreasonable and absurd consequences. It is true that the consequences of a suggested construction cannot alter the meaning of a statutory provision but it can certainly help to fix its meaning. It is a well recognised rule of construction that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided. There are many situations where the constructions suggested on behalf of the Revenue would lead to a wholly unreasonable result which could never have been intended by the Legislature."
40. While interpreting the provisions of the Act, the statutory provisions must be so construed, if possible, that absurdity and mischief may be avoided.
41. Considering the fact that if the regular assessment is not allowed there may be scope for escapement of assessable income. The interpretation suggested by learned counsel for the assessee, Shri Bajoria, will run counter to the intention of the Legislature. Therefore, we are in agreement with the view expressed by the Gujarat High Court in N. R. Paper and Board Ltd. v. Deputy CIT , and also the view taken by this court in the case of Caltradeco Steel Sales (P.) Ltd. [2000] 243 ITR 643, that there can be a regular assessment in addition to the assessment made under Chapter XIV-B and both the proceedings that is assessment of income under Section 143(3) and assessment in the block period under Chapter XIV-B can go on simultaneously. As income assessable under Chapter XIV-B is an "undisclosed income" while the income assessable under Section 143(3) is not an "undisclosed income" that has been clarified in the Explanation that the undisclosed income relating to that block period shall not include the income assessed in the regular assessment. Therefore, if any income is assessed under the regular assessment that cannot be taxed twice while making the assessment of the block period. But in the returns if some deductions have been claimed which are not permissible under the provisions of the Act of 1961, they can be assessed and taxed only in the regular assessment.
42. Now it brings us to consider whether the Explanation in Section 158BA inserted is ultra vires ?
The relevant Explanation inserted in Section 158BA reads as under :
"(a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period ;
(b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period ;
(c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period."
43. Shri Bajoria, learned counsel for the assessee, submits that in spite of this Explanation there cannot be two assessments of an income of a particular period, that is, one under the provisions of Chapter XIV-B and other one under Section 143(3) of the Act of 1961. If this Explanation read in a way to run counter with the provisions of Section 158BB then it should be declared ultra vires.
44. Whether the aforesaid Explanation inserted is clarificatory in nature or runs counter with the substantial provisions of Section 158BB of the Act of 1961.
45. While inserting this Explanation, the Legislature has clarified as under (see [1998] 231 ITR (St.) 228, 256) :
Clarificatory amendments in procedure for block assessment--To set at rest the controversy as to whether block assessment subsumes the regu-lar assessments or independent of the latter, the Bill proposes to clarify that block assessment shall be made in addition to the regular assessment of previous years included in the block period. Further, it proposes to provide that income assessed in regular assessment shall not be included in the block period and income assessed in the block period shall not be included in the regular assessment. The clarificatory amendment is proposed to be inserted retrospectively from the 1st day of July, 1995.
46. Considering the fact that when two opinions are expressed by two different High Courts whether a regular assessment of any block period can be made in addition to the undisclosed income of the block period assessed as per Chapter XIV-B of the Act. The Legislature has clarified its intention under the Chapter that there can be a regular assessment in respect of each previous year included in the block period in addition to the assessment made under Chapter XIV-B of the Act of 1961 and the undisclosed income relating to the block period shall not include the income assessed in a regular assessment as income of such block period.
47. The aforesaid Explanation now has left no doubt that there can be a regular assessment even of the year of a block period in addition to the assessment of undisclosed income under Chapter XIV-B of the Act of 1961. In view of the aforesaid discussion, we are of the view that the Explanation inserted in Section 158BA is clarificatory in nature and is not ultra vires.
48. In the result, we set aside the judgment of the learned single judge holding that there can be a regular assessment under Section 143(3) for the year for which the returns filed under Section 139 or Section 147 but the assessment has not been made till the date of search or requisition. As we have set aside the judgment of the learned single judge the assessment order made for the assessment year 1995-96 in pursuance of the return filed under Section 139 stands and the appeal arising out of that and pending before the Commissioner of Income-tax, shall also stand restored.
49. Therefore, there is nothing wrong in the notice issued under Section 142 or 143(2) of the Act.
50. In the result, the appeal is allowed with no order as to costs.