1. This appeal of the Revenue relates to block assessment 1987-88 to 1997-98. The only issue arises for consideration is regarding grant of interest on refund of Rs. 9,00,000/-which was seized during the course of search operation.
2. Mr. A.N. Pahuja, the learned Departmental Representative (D.R.) submitted that the first Appellate authority directed the Assessing Officer to allow interest at the rate of 15% on the refund of Rs. 9,00,000/- which was seized from the assessee. The learned D.R. further submitted that a search was conducted in the residential premises of the assessee under Section 132 on 31.7.97 and an amount of Rs. 12,00,000/- was seized in cash. A block assessment under Section 158BC was made on 17.3.98 accepting the return of the assessee and the tax payable was determined at Rs.3,00,000/-. After adjusting a sum of Rs.3,00,000/- towards tax due out of Rs. 12,00,000/- seized during the course of search, the balance amount of Rs .9,00,000/- was refunded to the assessee. On the refund of Rs. 9,00,000/-, the C1T(A) directed the Assessing Officer to grant interest for the period from 1.8.97 to 17.3.98. The learned D.R. farther submitted that under Section 132B(4Xb), interest need not be paid if the block assessment was completed within ten months from the date of search. According to the learned D.R., the time limit for passing the order under Section 132(5) is 120 days, i.e. 4 months and interest shall run after six months from the date of order under Section 132(5). Therefore, the assessee is entitled to interest in respect of excess amount retained by the Department, provided the block assessment order was not passed within ten months from the date of search. The learned D.R. further submitted that in this case no order under Section 132(5) of the Income Tax Act was passed and the block assessment was made on 17.3.1998. Therefore, according to the learned D.R., the assessee is not entitled to any interest on the sum of Rs. 9,00,000/- refunded by the Assessing Officer.
3. On the contrary, Mr. Philip George, the learned Counsel for the assessee submitted that the assessee is a pawn-broker and there was a search in the business and residential premises of the assessee on 31.7.97. During the course of search operation the revenue authorities seized Rs. 12,00,000/- in cash along with other assets. The assessee, according to the learned Counsel, filed the return in response to the notice issued under Section 158BC declaring the undisclosed income of Rs. 5,00,000/-. The assessment was also completed on 17.3.98 accepting the return filed by the assessee and tax payable was determined at Rs. 3,00,000/-. This tax of Rs. 3,00,000/- was adjusted against the cash seized and the balance amount of Rs. 9,00,000/- was refunded to the assessee. According to the learned Counsel, the claim of the assessee for payment of interest under Section 132B(4Xa) on the amount refunded was rejected by the Assessing Officer. On appeal by the assessee, me CIT(A) allowed the claim of the assessee and directed the Assessing Officer to grant interest from 1.8.97 to 17.3.98 at the rate of 15%.
4. The learned Counsel for the assessee again invited our attention to Section 132(5) of the Income Tax Act and submitted that Section 132(5) will not be applicable to any search initiated after 1.7.95. According to the learned Counsel, under Chapter XIV-B, a special procedure for assessment of undisclosed income for block period is prescribed by Finance Act 1995 with effect from 1.7.95. The learned Counsel for the assessee again invited our attention to Section 158BC(d) and submitted that Section 158BC(d) has three ingredients and they are: (a) the assets seized under Section 132 shall be retained to the extent necessary (b) Section 132B shall apply such modification as may be necessary (c) the reference to regular assessment or reassessment in Section 132B shall be construed as reference to block assessment.
According to the learned Counsel, Section 158BC(d) mandates the application of Section 132B with necessary modification. Therefore, according to the learned Counsel, the reference to regular assessment or reassessment in Sectionl32B(4Xa) and 132B(4Xb) shall be construed as reference to block assessment. The learned Counsel for the assessee again invited our attention to Section 132B(4Xb) and submitted that the interest shall run from the date of the assets seized under Section 132 and retained upto the date of the block assessment. The learned Counsel for the assessee further submitted that the assessee is entitled to interest from the dale of seizure of the asset under Section 132 till the date of block assessment since the provisions of Section 132(5) is not applicable. The learned Counsel for the assessee submitted that the first Appellate authority has rightly directed the Assessing Officer to grant interest.
5. We have considered the rival submissions on either side, and also perused the material available on record. We have also carefully gone through the provisions of Section 158BC, Section 132 and Section 132B.Admittedly, there was a search in the business and residential premises of the assessee on 31.7.97 and an amount of Rs. 12,00,000/- was seized besides other assets. Section 158BC(d) as it was in existence at the relevant point of time reads as follows: The assets seized under Section 132 or requisitioned under Section 132A shall be retained to the extent necessary and the provisions of Section 132B shall apply subject to such modifications as may be necessary and the reference to "regular assessment" or "reassessment" in Section 132B shall be construed as references to "block assessment.
This section clearly says that an asset seized under Section 132 or requisitioned under Section 132A shall be retained to the extent necessary and the provisions of Section 132B shall apply with necessary modification. In other words, wherever regular assessment or reassessment was referred in Section 132B, it shall be construed as reference to block assessment. Therefore, the Assessing Officer is expected to retain the asset which is necessary for the purpose of meeting the tax liability.
Such interest shall run from the date immediately following the expiry of the period of six months from the date of the order under Sub-section (5) of Section 132 to the date of the regular assessment or reassessment referred to in Clause (i) of Sub-section (1) or, as the case may be, to the date of last of such assessments or reassessments.
This Section 132B(4)(b) as it was in existence at the relevant point of time has to be read with necessary modification to the extent it is applicable for block assessment as provided in Section 158BC(d).
Section 132B(4)(b) refers to an order under Sub-section (5) of Section 132. We have also carefully gone through the Sub-section (5) of Section 132 as it existed at the relevant point of time. Section 132(5) as it was in existence at the relevant point of time reads as follows : 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 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 - (i) estimating the undisclosed income (including the income from the undisclosed property) in a summary manner to the best of his judgment on the basis of such materials as are available with him; (ii) calculating the amount of tax on the income so estimated in accordance with the provisions of the Indian Income-tax Act, 1922 (11 of 1922), or this Act; (iia) determining the amount of interest payable and the amount of penalty imposable in accordance with the provisions of the Indian Income-tax Act (11 of 1922), or this Act, as if the order had been the order of regular assessment; (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 Clauses (ii), (iia) and (iii) and forthwith release the remaining portion, if any, of the assets to the person from whose custody they were seized: 7. A bare reading of Section 132(5) clearly says that this section is applicable only in respect of search initiated before 1.7.1995.
Therefore, as rightly submitted by the learned Counsel for the assessee, Section 132(5) is not applicable to the facts of the case since the search was initiated only on 31.7.97. Therefore, in our considered opinion, no order is required to be passed under Section 132(5) for retaining the asset which is required for meeting the tax liability. However, in view of Section 158BC(d), Section 132B is applicable with necessary modification. In other words, whenever the block assessment is under consideration, the reference made in Section 132B as regular assessment or reassessment has to be construed as block assessment. Therefore, even though Section 132(5) is not applicable in respect of search carried out after 1.7.95, the asset retained by the Assessing Officer in excess to the extent necessary shall be dealt with under the provisions of Section 132B.8. The next question arises for consideration is whether the Assessing Officer has to estimate the undisclosed income and amount of tax even though Section 132(5) is not applicable in respect of search initiated on 31.7.95. In respect of block assessment, the proceeding commences on the date of initiation of the search. We find that the Amritsar Special Bench of the Tribunal in the case of Smt. Mahesh Kumar Batra v. JCIT (2005) 95 ITD 152 (ASR) (SB) examined the provisions of Chapter XIV-B of I.T. Act and held that the Assessing Officer gets the power to assess undisclosed income on the initiation of search. Therefore, the Assessing Officer after completion of search shall issue notice under Section 158BC calling upon the assessee to furnish a return of income.
Section 158BC(b) says that the Assessing Officer shall proceed to determine the undisclosed income of the block period in the manner laid down under Section 158BB. Section 158BE prescribes time limit for completion of block assessment. Section 158BC(d) as it was in existence, clearly says that the asset seized shall be retained to the extent necessary. The judicial principle requires to interpret the statutory provision in such a way to give effect to all the existing provisions without making any provision ineffective. Therefore, we have to read Sections 158BC(d) and 132B harmoniously. A harmonious reading of Section 158BC(d) and 132B shows that the Assessing Officer shall retain the asset seized to the extent necessary to meet the tax liability and the excess shall be returned to the assessee. Even though Section 132(5) is not applicable in respect of search initiated on 31.7.95, the legislature authorizes the Assessing Officer to retain the asset to the extent necessary. Therefore, the Assessing Officer has to estimate the undisclosed income and the amount of tax thereon. Now, we have to find out at what point of time the Assessing ' Officer shall estimate the extent of asset required for meeting the liability, in the absence of Section 132(5). In the case of block assessment, the Assessing Officer gets the jurisdiction to assess undisclosed income on the initiation of search as held by the Special Bench in the case of Smt. Mahesh Kumari Batra (supra). However, after completion of search, the Assessing Officer has to examine the seized material and if any material relating to any person other than the person with respect to whom search was made, then the same shall be handed over to the Assessing Officer having jurisdiction. Therefore, in the process of examination of seized material, the Assessing Officer could estimate the undisclosed income approximately and the tax liability of the assessee. In our opinion, while issuing notice under Section 158BG, the Assessing Officer could estimate the extent of asset which is required or necessary to meet the tax liability of the assessee. Even though Section 132(5) is not applicable, in our opinion, the Assessing Officer has to estimate the undisclosed income in view of Section 158BC(d). If we say that the Assessing Officer need not estimate the undisclosed income since Section 132(5) is not applicable, then the provisions of Section 158BC(d) would be in operation and that may not be the intention of the legislature.
9. The next question arises for consideration is whether the assessee is entitled to interest in respect of asset retained in excess of the tax liability. Section 158BC(d) as it stood at the relevant point of time authorizes the Assessing Officer to retain the asset to the extent necessary for meeting the tax liability and provisions of Section 132B with necessary modification would be applicable with respect to that asset. Section 132B(4)(b) which says that the interest shall run from the date immediately following the expiry of period of six months from the date of the order under Sub-section (5) of 132 to the date of regular assessment or reassessment. As we have already discussed, Section 132(5) of the Income Tax Act is not applicable to this assessee since the search was initiated only on 31.7.97. Therefore, there is no requirement for passing the order under Section 132(5). The contention of the assessee is that interest shall run from the date of asset seized under Section 132 to the date of block assessment. According to the learned Counsel, the word "immediately following the expiry of the period of six months from the date of the order under Sub-section (5) of Section 132" may not be applicable to block assessment. We are unable to accept the contention of the learned Counsel for the assessee. Section 132B(4)(b) clearly says that the interest shall run from the date immediately following the expiry of the period of six months from the date of the order under Sub-section (5) of Section 132.
As we have already observed, there is no requirement for passing order under Sub-section (5) of Section 132. However, the Assessing Officer can estimate the tax liability and the extent of asset required to be retained while issuing of notice under Section 158BC. Therefore, the modification as provided in Section 158BC(d) which is required to be done in Section 132B(4)(b) is that "the interest shall run from the date immediately following the expiry of period of six months from the date on which the notice under Section 158BC was issued to the date of block assessment." The interest shall run from the expiry of six months period from the date of which the Assessing Officer applies his mind and estimate the undisclosed income and the tax liability of the assessee. Even though Section 132(5) is not applicable, the Assessing Officer has to estimate the undisclosed income approximately in view of Section 158BC(d). This estimation of undisclosed income could be possible only when the notice under Section 158BC was issued. This interpretation would give effect to provisions of Section 158BC(d). If any other interpretation is made, in our opinion, the provisions of Section 158BC(d) would be ineffective and redundant and that may not be the intention of the legislature. In our opinion, the intention of the legislature is to grant interest only from the date immediately following the expiry of period of six months from the date on which the Assessing Officer would determine the extent of liability and the extent of assets required to be retained. In the case of block assessment, though the proceeding was commenced on the date of initiation of search, the Assessing Officer can come to a preliminary conclusion after examining the material seized on the date of issue of notice under Section 158BC with regard to extent of tax liability and the asset which is required to meet the estimated tax liability.
Therefore, the interest shall run only from the date immediately following expiry of six months from the date on which the notice under Section 158BC was issued.
10. In this case, notice under Section 158BC was issued on 23.10.97.
The six months period expired on 22.4.98. The block assessment order was admittedly passed on 17.3.98. Since the Assessing Officer completed the block assessment before the expiry of six months period from the date of issue of notice under Section 158BC, in our opinion, the assessee is not entitled to any interest in respect of the amount refunded to the assessee. In view of the above discussion, we are unable to uphold the order of the lower authority. Accordingly, we set aside the order of the lower authority and restore that of the Assessing Officer 11. In the result, the appeal filed by the Revenue stands allowed.
However, there will be no order as to cost.