V.S. Sirpurkar, J.
1. Following are the reasons in support of our order passed on March 1, 2001, dismissing the above writ appeals, in the open court.
2. This judgment will govern W. A. Nos. 1021 and 1022 of 2000. Two writ petitions came to be disposed of by a common order, they being W. P. Nos. 1424 and 1425 of 1999 (see : 239ITR782(Mad) ). In W. P, No. 1425 of 1999, the order passed by the Commissioner of Income-tax, dated November 18, 1998, is challenged and the further direction is sought to the Commissioner of Income-tax to redeposit the sum of Rs. 24,25,810 in the P. D. account of the respondent to the credit of the petitioner for the assessment year 1994-95, while in W. P. No. 1424 of 1999 the order dated January 12, 1999 in C. No. Act No. 0022/KVSS/C1 passed by the Commissioner of Income-tax, Central-I, Chennai, is challenged and the further prayer is for the quashing of the order and for a direction to the Commissioner of Income-tax to admit and accept the declaration filed by the petitioner under the Kar Vivad Samadhan Scheme (hereinafter referred to as 'the K.V.S. Scheme'). Obviously, the basic challenge was made in W. P. No. 1425 of 1999 because only if the order dated November 18, 1998, challenged in that writ petition was quashed, the petitioner could get the advantage of the KVS Scheme. The facts, as they appear, are in the short sphere.
3. The petitioner is an income-tax assessee. His assessment for the income-tax assessment year 1994-95 was completed by the Assessing Officer, viz.,Income-tax Officer, Film Ward-II, Chennai, by his order dated March 29,1996. The tax liability of Rs. 29,21,282 along with the consequential interest was found against the petitioner. The petitioner, therefore, preferred an appeal before the Commissioner of Income-tax (Appeals) and his appeal was dismissed by the order dated December 20, 1996. The petitioner, therefore, filed an application dated January 29. 1997, before the Commissioner of Income-tax, Tamil Nadu-IV, for stay of collection of tax but that was rejected by the Commissioner of Income-tax on February 6, 1997. The petitioner was accordingly directed to clear the arrears of tax for the assessment year 1994-95 forthwith. The petitioner was also directed to obtain necessary challan from the Assessing Officer for the payment of tax. The petitioner again filed an appeal against the order of the Commissioner of Income-tax (Appeals) and also filed a petition for slay before the Income-tax Appellate Tribunal, Chennai. This appeal was filed on April 11, 1997, and the stay petition came up for hearing before the Tribunal on May 9, 1997, and on its being opposed, the stay petition was dismissed on May 9, 1997, by the Tribunal.
4. In the meanwhile, however, on January 20, 1997, the residential premises of the petitioner at Chennai and Ernakulam were searched and in that search cash, jewellery and other documents were seized. Cash seized from the residential premises of the petitioner at Chennai was deposited in the P. D. account of the Commissioner of Income-tax, Tamil Nadu-IV, Chennai, while the cash seized from the residential and business premises at Ernakulam was originally deposited in the P. D. account of the concerned Commissioner of Income-tax and it was later transferred to the P. D. account of the Commissioner of Income-tax, Tamil Nadu-IV, Chennai. The cash seized was more than the tax liability found against the petitioner for the assessment years 1993-94 and 1994-95 and, therefore, a sum of Rs. 24,25,700 being the amount required for clearing the tax arrears of two assessment years was realised on December 17, 1997, from the total amount of Rs. 47,66,335 seized and deposited in the P. D. account of the Commissioner of Income-tax, Tamil Nadu-IV, Chennai, and the same was adjusted towards the arrears of the said two assessment years on February 20, 1997. Therefore, according to the respondents, the petitioner was not in arrears of any tax for the two assessment years 1993-94 and 1994-95.
5. All this seems to have been done on February 20, 1977, but before that the petitioner has sent a letter on February 29, 1997, to the Deputy Director of Income-tax (Investigation), Chennai, with a request that a sum of Rs. 60,00,000 lying in his bank account may be appropriated towards the tax liability that may arise out of the action under Section 132 of the Income-tax Act both at Chennai and Ernakulam. By that letter the petitioner also sought for a direction to lift the attachment orders. However, it is clear that in spite of this letter, which was earlier in point of time, theauthorities had diverted the amount of Rs. 24,25,700 from out of the cash seized during the search for wiping out the tax arrears of the assessment years 1993-94 and 1994-95.
6. It seems that the petitioner filed a declaration under the KVS Scheme for the assessment year 1994-95 but, his petition was rejected on the ground that there were no arrears of tax for the assessment year 1994-95 as the Department had already adjusted the amount. The Commissioner of Income-tax. Chennai, issued a letter that the petitioner's request dated October 21, 1998, seeking adjustment of a part of the seized cash towards the tax arrears for the block assessment had no merit as a sum of Rs. 24,25,810 has already adjusted towards the arrears of tax for the assessment years 1993-94 and 1994-95 by the then Assessing Officer and the appropriation had taken place in February, 1997, before the petitioner's case was notified to the Central Circle of the Income-tax Department. On November 19, 1997, the petitioner was directed to file his returns for the block assessment period under Section 158BC of the Income-tax Act in respect of the search that had taken place in the petitioner's premises. The petitioner filed this return on January 5, 1998, and he was informed by letter dated July 20, 1998, by the Assistant Commissioner of Income-tax Central Circle-I (5), Chennai, that the tax payable on the disclosed income was not paid. The details of the balance of the tax payable on the admitted income after adjustment of the seized cash amount and the amount realised by invoking the bank guarantees were also supplied in this letter. The challans for Rs. 23,40,525 and Rs. 9,50,000 were also enclosed showing the adjustments regarding these amounts from the P. D. account.
7. It was then the petitioner preferred an application before the Commissioner of Income-tax, Central-I, Chennai, stating that there were arrears of tax for the assessment years 1993-94 and 1994-95 and that the petitioner intended to avail of the KVS Scheme, 1998, pending disposal of the appeal, for the assessment year 1994-95. The petitioner also had pointed out in that application that he had already requested that the cash seized and the amount appropriated during the search under Section 132 of the Income-tax Act might be appropriated towards the ad hoc payment of tax liability, which would arise out of the proceedings under Section 132 of the Income-tax Act. The petitioner has also requested for suitable directions for giving for the tax paid by him for the block assessment and that it should be treated as the tax paid for the block assessment only and not for any other tax arrears. The order rejecting that petition is the subject-matter of W. P. No. 1425 of 1999, while the rejection of declaration dated November 16, 1998, filed by the petitioner for the KVS Scheme on the ground that there were no arrears of tax for the assessment year 1994-95 is the subject-matter of W. P. No. 1424 of 1999,
8. The learned single judge in his elaborate order held that it was not open to the Commissioner of Income-tax to adjust a sum of Rs. 24,25,810 against the tax arrears for the assessment year 1994-95 as that part of the cash seized in the search under Section 132 of the Act could be adjusted only towards the tax liability that might arise out of the 'block assessment' under Chapter XIV-B of the Act. The learned judge has found that Chapter XIV-B of the Act is a 'special provision for the assessment of the search cases' and, therefore, the concerned authorities were not justified in making the adjustment and thereby wiping out the tax arrears for the assessment year 1994-95. The learned judge has also rejected the case pleaded by the Department that the adjustment made by the Department against the earlier arrears of tax for the assessment year 1994-95 was valid and justified under Section 158BC read with Section 132B(1) of the Act. The learned judge has also rejected the stand taken by the Department that once the adjustment was made towards the tax arrears for the assessment year 1994-95 validly on February 20, 1997 itself, there would be no tax arrears for the assessment year 1994-95 on the date of filing of the declaration by the petitioner and, therefore, there would be no question of applicability of the KVS Scheme.
9. This judgment was very heavily assailed by learned standing counsel for the Department, Mrs. Chitra Venkataraman. Learned counsel contended that the interpretation by the learned judge of Section 158BC of the Income-tax Act was not correct. According to learned standing counsel, there were ample powers in that section if read with Section 132B of the Income-tax Act to adjust the amounts in the way the authorities had done in this case. Learned counsel stressed on the language of Section 132B of the Act and more particularly on the terminology 'existing liability' used in Sub-section (1), She also contended that a narrow view could not be taken of that provision so as to infer that the seized amount has to be first adjusted against the liability that arises in the block assessment only.
10. Learned counsel was at pains to point out that there was nothing to prohibit the adjustment of the amounts seized during the search for wiping out the existing liability of the assessee.
11. It will be, therefore, our endeavour to consider the real import of Section 158BC as also Section 132B of the Income-tax Act. In our opinion, the interpretation given by the learned single judge is absolutely correct and we agree with the same.
12. There can be no dispute that where there is a search under Section 132 of the Income-tax Act, the assessment would be under Chapter XIV-B of the Act, which was a specially introduced Chapter by the Finance Act, 1995. A glance at the whole scheme of this Chapter suggests that under Section 158BA, there is a 'non obstante' clause suggesting that notwithstanding anything contained in, any other provisions of the Act where a search iseffected after June 30, 1995, then the Assessing Officer shall proceed to assess the undisclosed income in accordance with the provisions of the Chapter XIV-B. Before that, in' Section 158B the term 'block period' is defined along with 'other undisclosed income'. Section 158B suggests the method of computation of undisclosed income of the block period which consists of a period of ten previous years prior to the previous year in which the search was conducted and also the period of the current previous year up to the date of the search. After setting down the principles of computation of undisclosed income of the block period, Section 158BC provides for that block assessment. Under Clause (a) of that section, there is a provision for serving the notices in respect of the search initiated of the books of account, etc. That may not be an apposite provision for the present controversy. Clause (b) however, provides that the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down in Section 158BB. The language of the section is extremely positive. It undoubtedly requires the Assessing Officer 'to proceed to determine the undisclosed income'. Clause (c) requires the Assessing Officer to pass an order of assessment and determine the tax payable by him on the basis of such assessment. Lastly, Clause (d) provides the manner in which the assets seized under Section 132 could be retained. A specific reference there is made to Section 132B of the Act. It is perhaps because of this specific reference that learned standing counsel stressed that under Section 132B(1)(i) a reference is made to the amount of 'existing liability' as referred to in Clause (iii) of Section 132(5). Learned counsel then points out that under Section 132(5) of the Act, the following langu-age is used :
'(5) Where any money, bullion, jewellery or other valuable article or thing (hereafter in this section and in Sections 132A and 132B referred to as the assets) is seized under Sub-section (1) or Sub-section (1A), as a result of a search initiated or requisition made before the 1st day of July, 1995, the Income-tax Officer, after affording a reasonable opportunity to the person concerned of being heard and making such enquiry as may be prescribed, shall, within one hundred and twenty days of the seizure, make an order, with the previous approval of the Joint Commissioner,--...
(iii) specifying the amount that will be required to satisfy any existing liability under this Act and any one or more of the Acts specified in Clause (a) of Sub-section (1) of Section 230A in respect of which such person is in default or is deemed to be in default,
and retain in his custody such assets or part thereof as are in his opinion sufficient to satisfy the aggregate of the amounts referred to in Clause (ii), (iia) and (iii) and forthwith release the remaining portion, if any, of the assets to the person from whose custody they were seized.'
13. From this language learned standing counsel submits that there should be ample power available in the concerned authority to adjust the amount seized under the provisions of Section 132 of the Act in the manner they have done. Though the contention is attractive in the first blush, it lacks substance for the following reasons :
(i) It has to be noticed that the language of Section 158BC is very 'positive'. There can be no dispute that the whole section is a 'complete code in itself' and provides as to what would be the procedure for 'block assessment'. The whole section starts from the point of conducting the search under Section 132 and after providing for the determination of the undisclosed income, the passing of the order in that behalf also provides as to how the assets seized under Section 132 are to be retained. Thus, there is firstly a duty in the authorities to proceed to decide the total liability in respect of the block period and once that process starts with the conducting of the search that must find its end ultimately with a decision regarding retention of the assets seized under Section 132 of the Act.
(ii) It must immediately be noted that under Section 158BA the whole assessment process would be exclusively governed by Chapter XIV-B because of the 'non obstante clause' in that section. It is therefore obvious that once a search takes place there has to be an assessment of undisclosed income in terms of Section 158BA, computation of undisclosed income of the block period is under Section 158BB and that has to be done with the procedure provided by Section 158BC. Seeing the scheme of Section 158BC there appears to be no scope for any hiatus in between Clauses (a), (b), (c) and (d). Therefore, there would be no question of dealing with the assets seized under Section 132 in any other manner excepting under Chapter XIV-B. Unfortunately for the Department, it is an admitted position that the assessment under Section 158BC is not yet over. That was disclosed to us during the arguments by learned standing counsel. If that is so, then there could not be this intervening step of adjusting the assets towards the tax arrears of the assessment year 1994-95. That would be completely contrary to the scheme of the section.
(iii) Even as regards the language of Section 132B and more particularly Clauses (i) and (ii) thereof it has to be realised that because of the language of Section 158BC(d), the assets retained under Sub-section (5) of Section 132 can be dealt with only after the completion of regular assessment or reassessment for all the assessment years relevant to the previous years to which the income referred to in Clause (i) of that Sub-section relates. Now, under Section 158BC(d) it is specified that the terms 'regular assessment' or 'reassessment' used under Section 132B have to be construed as 'block assessment'. It is therefore obvious that by the necessary reference the stage under Section 132B in respect of the assets would come only after the block assessment is done in terms of Section 158BC, etc. Thatnot having been admittedly done, there would be no question of relying upon Section 132B for the purposes of adjustment of any such assets seized under Section 132 for the purpose of writing off the tax liability of the assessee for any such previous year not covered under block assessment.
14. We are therefore in total agreement with the learned single judge who has held that the adjustment made by the Assessing Officer of the sum of Rs. 25,24,700 could not have been made unless the assessment and the further formalities under Section 158BC of the Act were completed. We have no dispute with the proposition that if there is any amount remaining after doing the adjustment as contemplated in Section 158BC the remaining excess assets could be adjusted towards any other liability. However, in our opinion, the learned single judge was right in holding that once there is a seizure under Section 132, the proceedings as contemplated in Chapter XIV-B would have to follow first. The argument of learned standing counsel assailing this aspect of the judgment of the learned single judge is, therefore, clearly incorrect and must be rejected.
15. Thus, we are in agreement with the learned single judge that the appellants erred in making the adjustment of Rs. 24,25,700 against the tax liability of the respondent for the assessment year 1994-95. We are also in total agreement with the learned single judge that once this adjustment is set aside then the respondent would be entitled to get the advantage of the KVS Scheme which he had tried to rely on.
16. No other point was argued before us. In our opinion, the appeals have no substance for the above mentioned reasons. C. M. P. Nos. 8508 to 8510 of 2000 are closed.