Y.R.MEENA, J. - (1.) THIS appeal is directed against the impugned order and judgment dt. 23rd Feb., 1999, [reported as Shaw Wallace & Co. Ltd. vs. Asstt. CIT & Anr. (1999) 154 CTR (Cal) 105-Ed]. Revenue appellant has raised the grievance that the learned Single Judge has wrongly held, the notices under S. 142 and S. 143(2) of the IT Act, 1961 (hereinafter called the Act 1961), bad in law and set aside the assessment of the asst. yr. 1995-96 and further directed that regular assessment for the asst. yr. 1995-96 shall be completed within 6 months of finalisation of the block assessment on the basis of the return filed by the assessee for that assessment year and while making adjustment in the block income assessed for asst. yr. 1995-96 the AO should accept the return for the asst. yr. 1995-96, except to correct some arithmetical mistakes or clerical mistake as allowed under S. 143(1) of the Act, 1961. On 27th Aug., 1996, search was conducted at the office premises of the assessee- company under S. 132 of the Act, 1961, in the course of which various documents and records were seized. On 28th Nov., 1997, AO passed the order of block assessment for the asst. yr. 1986- 87 to 27th Aug., 1996. That said block assessment includes part of the asst. yr. 1995-96 for which the return was filed before the date of search was pending before the AO. The AO after completing the block assessment issued the notice under ss. 142(1) and 143(2) for asst. yr. 1995-96 to complete the regular assessment. Those notices challenged by way of Writ Petn. No. 443 of 1998. Learned Single Judge has allowed the petitioner directing not to proceed with the notices under ss. 142(1) and 143(2).
(2.) WHILE considering the various arguments learned Single Judge has observed in his judgment that once the two total incomes under s.158BB are computed, no further scope remains for AO to make any further computation for the purpose of making the regular assessment. That regular assessment for the assessment year pending and falling within the block periods must be on the basis of the return filed under S. 139 and no other basis save and except adjustment of arithmetical errors or matters beyond doubt and dispute. That the computation of the second total income under S. 158BB, binds the AO for making assessment of tax in regular assessment under s. 143(3) and the AO had no jurisdiction to arrive at one computation of the second total income, under S. 158BB at least insofar as S. 158BB(1)(c) and to arrive at a different computation of total income for the purpose of S. 143(3). That is not possible to permit the AO 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 be precede regular assessment and only after completion of the block assessment to make the regular assessment under S. 143(3) on the basis of the return filed. Prior to making block assessment regular assessment is ruled out. That AO might convert the pending return in any other manner than on the basis of the return under S. 158BB. AO might convert the pending return into the assessed return, thereby causing no prejudice either to the Revenue or to the assessee. AO, to save limitation even before the block assessment, can make the regular assessment for unassessed return in exceptional case, but on the basis of return itself without entering into scrutiny. That notices under S. 142 and S. 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 finalisation 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 CIT(A) as infructuous. Heard learned counsel for the parties. They are also allowed to file written submissions, time was allowed to file the written submission by 1st week of November, 2000. Both the parties filed the written submissions.
(3.) LEARNED counsel for the appellant Mr. Shah submits that Chapter XIV-B of the Act, 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, 1961. Sec. 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 AO can proceed with assessing the regular income of assessee under the regular provisions of this Act. But while computing the undisclosed income under Chapter XIV-B, the return pending cannot be disturbed in computing undisclosed income for the block period. He further submits that the undisclosed income assessable under Chapter XIV-B of the Act, 1961, is on the basis of material seized during the search but the income declared or disclosed in the regular returns that cannot be assessed under 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 Gujarat High Court and subsequent decision of the Kerala High Court is on the one hand and decision of Punjab & Haryana High Court and also decision of the Kerala High Court in N.T. John vs. CIT & Anr. (1997) 137 CTR (Ker) 656 : (1997) 228 ITR 314 (Ker) : TC 62R.405 on the other hand. That doubt has been removed by 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. 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 Calteradeco Steel Sales (P) Ltd. vs. Dy. CIT (2000) 158 CTR (Cal) 369 : (2000) 243 ITR 643 (Cal) and decision of Gujarat High Court in N.R. Paper & Board Ltd. & Ors. vs. Dy. CIT (1998) 146 CTR (Guj) 612 : (1998) 234 ITR 733 (Guj) : TC S10.1209. In Malayil Banker vs. Asstt. CIT (1999) 152 CTR (Ker) 443 : (1999) 236 ITR 869 (Ker), the earlier decision of Kerala High Court in N.T. John vs. CIT & Anr. (supra) has been overruled by Kerala High Court.;