Assessment of search cases and block assessment - current scenario

Chapter XIV-B contains provisions for assessment of undisclosed income in cases of search. A special procedure is provided by this chapter for assessment of such cases. This chapter requires an Assessing Officer to assess the undisclosed income of a block period, of a person being searched, in accordance with the provisions of this chapter. The block period is defined to mean a period of six assessment years preceding the previous year of search and includes the period up to the date of search. An undisclosed income is also specifically defined. Such income determined in accordance with the provisions of the chapter and other provisions of the Act is charged to tax at the rate of 60% or such other rate as specified u/s 113 of the Act. Surcharge as applicable in the year of search is also levied.

Amendments and its implications
As already stated earlier, the clock assessment procedure was not found feasible and hence a new scheme was introduced in place of chapter XIV B by insertion of sections 153A, 153B and 153C for assessment in case of search or requisition made after 31st May, 2003. The scheme of block assessment will not apply to the cases of search actions initiated after 31-5-2003 or requisitions made thereafter.. Section 153A provides that in case of a person who is searched u/s 132 or whose books of account, other documents or any assets are requisitioned u/s 132A, the Assessing Officer shall require such person to furnish a return of income in respect of each assessment year falling within six assessment years preceding the assessment year relevant to the previous year of search. Such returns are required to be furnished within the time limit specified in the notice issued under such section. The Assessing Officer is required to assess or reassess the total income of six such assessment years. The said provisions empowers the Assessing Officer to assess or reassess the total income in respect of each assessment year falling within such six assessment years. Second proviso to the said clause further provides that any assessment year falling within the above said period of six such years pending on the date of initiation of search or making of requisition shall abate. Further, it has been clarified by an Explanation that the tax shall be chargeable at the rates applicable to respective assessment year. Interest u/ss.234A and 234B is also leviable. Also, such person is liable for prosecution u/s 276CC if such person fails to furnish Return of Income.

The order of assessment or reassessment in respect of each assessment year falling within such six assessment years referred to in clause (b) of s.153A is required to be made within a period of two years from the end of the financial year in which the last of the authorisations was executed. The Assessing Officer shall also complete the assessment in respect of assessment year relevant to the previous year in which search is conducted or requisition is made within the above period.
The amendment also empowers the Assessing Officer to handover the seized assets, belonging to any person other than person referred u/s 153A to the Assessing Officer who exercises jurisdiction over such other person and that the Assessing Officer is required to proceed u/s 153A against such other person.
The implications of the new scheme are summarised below:

• The assessment of search cases will be as per sections 153A to 153C where search has taken place after 31st May 2003.
• The provision of Chapter XIV-B will not apply to such search actions. The new scheme of assessment does away with the concepts of block period, undisclosed income and block assessment.
• Under the new scheme a total income of an assessee will be determined and the scope of such income will not be restricted to undisclosed income.
• Tax will be paid at the regular rates as applicable to respective years on total income and would not be levied @60% or such other rate u/s 113 on the undisclosed income.
• Under the new scheme, the returns are required to be filed after search in respect of six assessment years preceding the year of search.
• The Assessing Officer is required to issue a notice requiring the assessee to file separate returns for each of the specified years.
• The returns are required to be filed within the time permitted by the Assessing Officer.
• Returns will have to be filed afresh even where the same were filed for any or all of the six years before the search.
• Pending proceedings for assessment or reassessment for any of the specified years will be terminated.
• Fresh assessments or reassessment will be made on the basis of the returns filed after search.
• Self Assessment tax, if any, will be payable at the time of filing the returns u/s 140A for each of assessment years on the basis of the returned income.
• Interest u/ss 234A and 234B will also be payable for each assessment year.
• The assessment or reassessment will be carried out in a manner permitted by the law, which will include an opportunity of hearing, right to produce evidence and judicious examination by the Assessing Officer and observation of the principles of natural justice in the assessment proceedings.
• The assessments/reassessments are required to be completed within the period of two years from the end of the financial year in which the last of the authorizations was executed.
• The total income will be computed and assessed as per the provisions of Income-tax Act.
• Penalty under any of the provisions of the law, if leviable, will be levied.
• A return of income for the year of search would be filed in the regular course, for the whole year, by the due date or such other date permissible u/s 139.
• The income for such year also will be assessed within a period of two years from the end of the financial year in which the last of the authorizations was executed.
• The Assessing Officer is required to transfer the seized assets and the material belonging to a third party to the Assessing Officer having jurisdiction over the third party. On receipt of such assets and material, the Assessing Officer of such person is required to issue a notice u/s 153A to such person and assess or reassess his income as per the provisions of s. 153A.
• An appeal against the orders for each year will lie u/s 246A before the CIT(Appeals).
• The order u/s 153A will be capable of being rectified and also revised.
• Reassessment of such assessed or reassessed income u/s 147 may be possible
• It will be possible to make an application for settlement of cases to the Settlement Commission for any or all of the specified years.
• Provisions of Explanation 5 to section 271(1)(c) may apply for deemed concealment for the year of search and other years for which returns are not filed, and in such cases the exemption may be possible on compliance of conditions specified therein.
• Prosecution u/s 276CC is specifically made possible.