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CASE NO.: Appeal (civil)  2946-2956 of 2008

PETITIONER: K.P. Mohammed Salim

RESPONDENT: Commissioner of Income-tax, Cochin

DATE OF JUDGMENT: 24/04/2008

BENCH: S.B. SINHA & LOKESHWAR SINGH PANTA

JUDGMENT: J U D G M E N T

CIVIL APPEAL NOS.   2946-2956 OF 2008 (Arising out of SLP (C) Nos.11296-11306 of 2005)

S.B. SINHA, J.

1.      Leave granted.

2.      Interpretation/ application of Section 127 of the Income Tax Act,  1961 (for short, "the Act") vis-‘-vis the provision regarding Block  Assessment is in question in this appeal which arises out of a judgment and  order dated 2.4.2004 passed by the High Court of Kerala at Ernakulam in  ITA No. 172 of 2000 and WPC No. 23449 of 2003.   A search was conducted by the Officers of the Income Tax  Department in the residence as also in the business premises of the assessee,  his sons and other associates, consequent whereupon, it was proposed to  transfer the cases pertaining to the assessee to the Income Tax (Inv.) Circle,  Calicut to facilitate effective and coordinate investigation.  An order was  passed to that effect by the Chief Commissioner of Income Tax, Bangalore  under Section 127(2) of the Act.  A notice was issued by the Assessing  Officer under Section 158BC of the Act to file a return setting forth the total  income including the undisclosed income for the block period.    The assessee filed a writ petition in the High Court of Karnataka  challenging the said order of transfer of cases passed by the Chief  Commissioner of Income Tax.  The said writ petition was dismissed.  Writ  Appeals preferred thereagainst were also dismissed.    A notice was thereafter issued by the assessing authority asking the  assessee to file a return setting forth the total income including the  undisclosed income for the block period.  Pursuant thereto, the return was  filed.  The purported undisclosed income of the assessee was determined.   The said order of the Assessing Officer, Calicut was challenged on the  ground that he had no jurisdiction to make the block assessment as the  authority therefor remained with the Assessing Officer originally having the  jurisdiction over the assessee.  3.      A Division Bench of the High Court by reason of the impugned  judgment opined that the provisions of Section 127 of the Act can also be  resorted to for a block assessment. 4.      Mr. TLV Iyer, learned Senior Counsel appearing on behalf of the  petitioner would submit that having regard to the definition of block  assessment occurring in Chapter XIV-B of the Act, Section 127 thereof ex  facie cannot have any application thereto.  5.      Mr. Gopal Subramaniam, the learned Additional Solicitor General  appearing on behalf of the Revenue, however, would support the impugned  judgment.  

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6.      The power to conduct a search by the authorities of the Income Tax  Department in terms of Section 132 of the Act is not in dispute.  It is further  not in dispute that Chapter XIV-B shall apply in a case of this nature.   Clause (a) of Section 158 B defines ’block period’, which reads as under:

"(a)    "block period" means the period comprising  previous years relevant to six assessment  years preceding the previous year in which  the search was conducted under Section 132  or any requisition was made under Section  132A and also includes the period upto the  date of the commencement of such search or  date of such requisition in the previous year  in which the said search was conducted or  requisition was made:

Provided that where the search is initiated or  the requisition is made before the 1st day of  June, 2001, the provisions of this clause  shall have effect as if for the words "six  assessment years", the words "ten  assessment years" had been substituted;"

       A block period, therefore, not only would include ten years of  assessment but also that portion of the assessment year in which assessment  was to take place as on the date of the search.   7.      Chapter XIV-B provides for special procedure. Section 158 BC lays  down the procedure for block assessment.  Section 158 BD provides for  taking into consideration undisclosed income of any other person.  Section  158 BE provides for the time limit for completion of block assessment.   Section 158 BH of the Act reads as under: "158BH. Application of other provisions of  this Act.  Save as otherwise provided in this  Chapter, all other provisions of this Act shall apply  to assessment made under this Chapter."

       Chapter XIV-B only lays down special procedure for assessment but  thereby the effect and purport for which the assessment of income tax is  done does not stand obliterated.   8.      An order of transfer as noticed hereinbefore can be passed by the  appropriate authority in terms of Section 127 of the Act, which reads as  under:

"127.   Power to transfer cases\027(1)  The Director  General or Chief Commissioner or Commissioner  may, after giving the assessee a reasonable  opportunity of being heard in the matter, wherever  it is possible to do so, and after recording his  reasons for doing so, transfer any case from one or  more Assessing Officers subordinate to him  (whether with or without concurrent jurisdiction)  to any other Assessing Officer or Assessing  Officers (whether with or without concurrent  jurisdiction) also subordinate to him.  (2)     Where the Assessing Officer or Assessing  Officers from whom the case is to be transferred  and the Assessing Officer or Assessing Officers to  whom the case is to be transferred are not  subordinate to the same Director General or Chief  Commissioner or Commissioner,- (a)     Where the Directors General or Chief  Commissioners or Commissioners to whom such  Assessing Officers are subordinate are in agreement, then  the Director General or Chief Commissioner or  Commissioner from whose jurisdiction the case is to be

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transferred may, after giving the assessee a reasonable  opportunity of being heard in the matter, wherever it is  possible to do so, and after recording his reasons for  doing so, pass the order; (b)     Where the Directors General or Chief  Commissioners or Commissioners aforesaid are not in  agreement, the order transferring the case may, similarly,  be passed by the Board or any such Director General or  Chief Commissioner or Commissioner as the Board may,  by notification in the Official Gazette, authorize in this  behalf.

xxx                     xxx                             xxx

Explanation:    In Section 120 and this Section, the  word "case", in relation to any person whose name  is specified in any order or direction issued  thereunder, means all proceedings under this Act  in respect of any year which may be pending on  the date of such order or direction or which may  have been completed on or before such date, and  includes also all proceedings under this Act which  may be commenced after the date of such order or  direction in respect of any year.           9.      An order of transfer is passed for the purpose of assessment of  income.  It serves a larger purpose.  Such an order has to be passed in public  interest.          Only because in the said provision the words "any case" has been  mentioned, the same, in our opinion, would not mean that an order of  transfer cannot be passed in respect of cases involving more than one  assessment year.            It would not be correct to contend that only because explanation  appended to Section 127 refers to the word ’case’ for the purpose of the said  Section as also Section 120, the source of power for transfer of the case  involving block assessment is relatable only to Section 120 of the Act.  It is  a well-settled principle of interpretation of statute that a provision must be  construed in such a manner so as to make it workable. When the Income Tax  Act was originally enacted, Chapter XIVB was not in the statute book.  It  was brought in the statute book only in the year 1996.  10.     The power of transfer is in effect provides for a machinery provision.   It must be given its full effect.  It must be construed in a manner so as to  make it workable.  Even Section 127 of the Act is a machinery provision.  It  should be construed to effectuate a charging Section so as to allow the  authorities concerned to do so in a manner wherefor the statute was enacted.          The question came up for consideration before a Division Bench of  the Andhra Pradesh High Court in Mukutla Lalita vs. Commissioner of  Income Tax & ors. Reported in [1997] ITR 226 23 wherein it was held: "Hence it can be imagined that an order has to be  passed as to who shall be the Assessing Officer  under Section 158BG in the case of a search.  Such  an order can be passed only by a higher officer  who may be either the Commissioner or the Chief  Commissioner, as the case may be.  Hence, unless  such an order has been passed, the Assessing  Officer to whom the records have been handed  over under section 158BD cannot ipso facto hand  over the records to the Assistant Commissioner,  until he has been chosen to act as the Assessing  Officer under Section 158BG.  For doing so, a  procedure for transfer of the records and the  passing of orders to that effect is necessary for the  records to be transferred to the officer selected  under section 158BG.  It is in this context that the  provisions of Section 127 have to be resorted to.  It

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is for such reason, we are unable to agree with  learned standing counsel that Chapter XIV-B is a  self-contained special provision relating to search  procedures and assessments to which Section 127  has no application. The submission would have  been correct if Section 127 and Chapter XIV-B  were inconsistent with each other and it has to be  held because of such reason that a specific  provision like Chapter XIV-B would displace a  general provision like section 127.  But as we see  it, both provisions are supplemental to each other  and that the provisions of section 127 fill in the  gap between the stage of sections 158BD and  158BG. The impugned order passed under Section  127 hence cannot be faulted by saying that the  section was not applicable.  It is also not correct, as  has been contended, that giving a notice under  Section 127 in the event of a proceeding under  Chapter XIV-B would be a mere formality without  any substance as records are to be compulsorily  handed over to the officer under section 158BG.   While in most of the cases the submission may be  correct, yet it is conceivable that in some cases,  reasonable opportunity being given as  contemplated under Section 127(1) or (2) of the  Act, the person concerned may be able to convince  the authority giving the notice that he is actually  unrelated or unconnected to the proceeding started  under Chapter XIV-B. If such conclusion is  reached, the authority at that stage may  disassociate the person concerned from the specific  proceeding in Chapter XIV-B and may not transfer  the papers to the other officer.  As has been fairly  pointed out by learned standing counsel himself,  the provisions of section 127(1) apply when the  transfer is contemplated not only between the  officers of the subordinate rank but also officers  either with or without concurrent jurisdiction.   Hence, even when the records are to be transmitted  to the officer not higher in rank than the officer to  whom the papers are handed over in the first  instance under section 158BD, the provisions of  section 127 are to be complied with to give  notice."

11.     We agree with the opinion of the Division Bench, but we may also  notice that the provisions of Section 158BH had not been brought to its  notice, which categorically states that all other provisions of the Act shall  apply to assessment made under the said Chapter.  Section 127 of the Act,  which falls under Chapter XIII would therefore mutatis mutandis apply to  Chapter XIVB particularly when the jurisdiction of the Income Tax  Authorities, inter alia, relates to passing an order of assessment.          The word ’any’ must be read in the context of the statute and for the  said purpose, it may in a situation of this nature, means all.  The principles  of purposive construction for the said purpose may be resorted to. [See New  India Insurance vs. Nusli Neville Wadia [(2007) 13 S.C.R. 598].  Thus, in  the context of a statute, the word ’any’ may be read as all in the context of  the Income Tax Act for which the power of transfer has been conferred upon  the authorities specified under Section 127.   10.     We have no hesitation in arriving at the conclusion that the power  under Section 127 can also be exercised in respect of a block assessment.    For the reasons aforementioned, we find no merit in these appeals.  The  appeals are dismissed accordingly with costs.  Counsel’s fee assessed at  Rs.25,000/- (Rupees twenty five thousand only).