The Finance Act 1995, inserted a new Chapter XIV-B in the Act. It provides a new concept for assessment in relation to searches conducted under Section 132 of the Income Tax Act, 1961, or requisition made under Section 132-A after June 30, 1995.

The salient features of Chapter XIV-B are the total undisclosed income of a person would be assessed as the income of a block period consisting of previous years relevant to ten assessment years preceding the previous year in which the search was conducted or requisition was made and also the period of the current previous year up to the date of the search or the requisition.

The undisclosed income of the block period would be taxed at a flat rate of 60 per cent as given in Section 113. The order of assessment for the block period is to be passed within one year from the end of the month in which the last authorisation for the search or the requisition was executed.

Prior to insertion of Chapter XIV-B, estimation of the undisclosed income was made in a summary manner under Sections 132(5) and 132(7). Chapter XIV-B was in substitution of Section 132(5) with an extension of scope.

"Block period" as defined in Section 158-B means the previous years relevant to ten assessment years preceding the previous year in which the search was conducted under Section 132 or any requisition was made under Section 132-A, and includes, in the previous year in which such search was conducted or requisition made, the period up to the date of the commencement of such search or, as the case may be, the date of such requisition.

The definition of "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 accounts or other documents 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.

Section 158-BA provides that notwithstanding anything contained in any other provision of the Act, where after June 30, 1995, a search is initiated under Section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any person, then, the Assessing Officer would proceed to assess the undisclosed income in accordance with the provisions of Chapter XIV-B.

The total undisclosed income relating to the block period was to be assessed at a flat rate of 60 per cent.

The Punjab & Haryana High Court in the case of Raja Ram Kulwant Rai vs Asst. CIT (227 ITR 187) had occasion to deal with the scope and ambit of this new scheme of assessment. The court took note of the fact that the Assessing Officer has to serve a notice to the concerned person requiring him to furnish within a specified time (not less than fifteen days) in the notice, a return in the prescribed form setting forth his total income including the undisclosed income for the block period.

No notice under Section 148 is required to be issued for the purposes of proceeding under Chapter XIV-B. The Assessing Officer thereafter would proceed to determine the undisclosed income of the block period in the manner laid down in Section 158-BB.

The Assessing Officer, on determination of the undisclosed income of the block period in accordance with Chapter XIV-B, would then pass an order of assessment and determine the tax payable by the assessee on the basis of such assessment of the undisclosed income of the block period.

The purpose of introduction of Chapter XIV-B is that the undisclosed income detected as a result of any search initiated or any requisition made after June 30, 1995, would be assessed separately as the income of the block years. Special procedure was introduced for framing of assessment of search cases.

Section 158-BA starts with a non obstante clause that notwithstanding anything contained in any other provisions of the Act after June 30, 1995, cases arising out of search and seizure under Section 132 would be assessed in accordance with the newly introduced Chapter XIV-B.

Once an assessment is framed qua a particular year falling within the block period of ten years, no other assessment under any other provisions of Act 5 can be framed.

In the present case, the income of each of the ten years prior to the year of search, that is, including the assessment years 1988-89 and 1989-90, had already been determined separately under two heads: (i) income already assessed and (ii) concealed income.

The income of the assessment years 1988-89 and 1989-90 did not remain to be determined after determination of yearwise income and pending assessments of those years stood merged in the collective assessment under Section 19-BC (C) of the Act.

Once the income of the assessment years 1988-89 and 1989-90 had been determined taking into account the income already assessed and concealed income which included the years in question, no assessment remained to be framed.

Once the assessment has been framed it can only be reopened by issuing notice under Section 147/148 where income has escaped assessment or as a result of search and seizure under Section 132.

Notices issued under Section 148 prior to the search were rendered infructuous after the framing of the assessment for the block period of ten years under Chapter XIV-B. It was held that the department could not proceed on the basis of notices issued under Section 148 prior to the framing of assessment under Chapter XIV-B.

Under Section 143(2), the Assessing Officer can issue notice in case he deems it necessary or expedient where a return has been filed under Section 139 or in response to a notice under Section 142(1) to ensure that the assessee has not understated the income or has not computed excessive loss or has not underpaid the tax in any manner, serve on the assessee a notice requiring him, on a date to be specified therein, either to attend his office or to produce, or cause to be produced there, any evidence which the assessee may rely in support of the return.

The purpose of introducing of Chapter XIV-B which provides for special procedure for framing of assessment orders for a block period of ten years would be lost if the Assessing Officer is allowed to proceed under Section 143 on a return filed under Section 139 or in response to a notice under Section 142(1).

Certainly two assessments cannot be framed for the same assessment year on an assessee. Once an assessment has been framed for a block period under Section 158-BC which includes the years in question, the Income Tax Officer stands debarred from framing an assessment under Section 143 on the basis of returns already filed under Section 139.

After framing of assessment under Section 158-BC for a block period of ten years, income of any year covered by any block period cannot be determined afresh as all pending assessments of those years stand merged in the collective assessment under Section 158-BC(c) of the Act.

Considering the facts in this case, the court held that the income of each of the ten years prior to the year of search, including the assessment years 1988-89 and 1989-90, had already been determined separately under two heads: (i) income already assessed, and (ii) concealed income.

The income of the assessment years 1988-89 and 1989-90 did not remain to be determined after determination of yearwise income. All pending assessments of those years stood merged in the collective assessment under Section 158-BC(c).

Notices issued under Section 148 prior to the search were rendered infructuous after framing of the assessment for the block period of ten years under Chapter XIV-B.

The department could not, therefore, proceed on the basis of notices issued under Section 148 prior to the framing of assessment under Chapter XIV-B.Hence, the court concluded that the action of the Assessing Officer was indefensible and could not be sustained.

This is for the obvious reason that an assessee cannot be assessed twice for the same assessment year by framing two assessments, one under Chapter XIV-B in the case of search and the other in the course of regular assessment.

There can be no two opinions that the decision of the Punjab & Haryana High Court lays down the correct proposition of Law.

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