Dr. Bharat Mehta v. Deputy Commissioner of Income-Tax
(2020) 423 ITR 568: (2020) 317 CTR 759
In the High Court of Madras
WP 20999/2003 and WPMP 26089/2003
Before Justice R. Suresh Kumar
Decided on December 31, 2019

Relevancy of the Case: Validity of the block assessment period when an assessee denies sharing his passwords

Statutes and Provisions Involved

• The Information Technology Act, 2000 (Section 2(1)(t))
• The Income-Tax Act, 1961 (Section 132, 143(1), 143(2), 158B(a), 158BC, 158BG, 158BFA(2), 158BE, 158BG)
• The Constitution of India, 1950 (Article 226)

Relevant Facts of the Case

• The petitioner, a medical practitioner with some family businesses, was an income-tax assessee from 1979 onwards. The respondent, Revenue, had put his premises in Chennai under warrant in 2001 for a block period from April 1, 1990, to January 24, 2001.
• The respondent concluded its search by recording a panchnama and a prohibitory order. The Revenue proceeded with a seizure, following which the petitioner filed a return for the block period.
• The respondent ordered a block assessment for the said block period, computing the tax, surcharge, and interest payable by the petitioner to the extent of ₹ 5.23 crores and initiating penalty proceedings.
• Instead of availing the appeal remedy, the petitioner filed this writ petition.

Prominent Arguments by the Advocates

The petitioner’s counsel argued that:

• The limitation period would start on the day the search ended and the authorities issued the panchnama. The prohibitory order followed by several search and seizure operations after a long break would bar the block assessment order from this limitation period.
• The petitioner did not receive notice of the proceedings, and the respondent failed to get prior approval from the Joint Commissioner or the Joint Director of Income Tax.
• Moreover, the petitioner was not given a proper opportunity throughout the assessment proceedings, violating the principles of natural justice.

The respondent’s counsel submitted that:

• The Director of Income Tax (Investigation) authorised the warrants, and the petitioner saw these warrants and affixed his signature. The petitioner did not avail of alternate remedies as present under the Act.
• The search conducted on one of his premises was completed; the other was inconclusive; thus, they issued a prohibitory order. The petitioner did not cooperate with the respondents in sharing his password to gain access to the electronic records.
• The respondents continued the search until June 12, 2001, when they accessed the documents. Thus, the limitation would commence in July.

Opinion of the Bench

• The court entertained the writ petition considering the violation of natural justice and the limitation period.
• The respondents obtained permission from the Joint Commissioner of Income Tax.
• The respondents issued notices under Section 143(2) of the Income Tax Act, 1961, on June 6, 2003.
• The respondents did not complete their search in January as the petitioner did not disclose his passwords, which led to an extended search. Thus, the respondents concluded their search in June, and the limitation period commenced in July. The notice was not in contravention of the limitation period.

Final Decision

• The bench held the block assessment to be valid and dismissed the writ petition.

Arnav Kaman, an undergraduate student at Rajiv Gandhi National University of Law, Punjab, and Khilansha Mukhija, an undergraduate student at the Institute of Law, Nirma University Ahmedabad, prepared this case summary during their internship with The Cyber Blog India in January/February 2024.