TMI Blog2000 (2) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... ealers outside the books of account. Such sales totalled Rs. 14.80 crores. The diary also consisted of some cash collections, amounts sent by DDs, payments made to suppliers like Chemplast, R. K. Mills, Coal and some interest payments to parties. The director of the assessee-company, Sri Krishnakumar, was confronted with these entries and in the absence of satisfactory explanation from him, a declaration under section 132(4) was made by him admitting Rs. 1.90 crores as profit out of the above unaccounted for transactions. During the course of the search, Sri H. Kishan was confronted with the investments made by his family group, i.e., Haridas group , in promoters quota shares and he has disclosed an amount of Rs. 19,00,000 towards unaccounted for investment in promoters quota equity in Fenoplast Ltd. Also the assessee admitted undisclosed income for the assessment year 1991-92 at Rs. 4,25,000 towards unexplained cash credits in sister concerns. Thus, the disclosure made by the assessee-company under section 132(4) is as follows : Rs. Towards profit on unaccounted for sales 1,90,00,000 Unaccounted investment in promoters equity of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act to arrive at the undisclosed income. Accordingly, the Assessing Officer determined the undisclosed income for the block period at Rs. 1,46,02,752 and tax thereon at Rs. 87,61,651. Secondly, he did not accept the contention that income for the regular assessment and assessment under section 158BC including the undisclosed income could be nil . He rejected the assessee s submission that the current year s depreciation for each year was enough to neutralise the addition of undisclosed income, holding as under : .. if the resultant figure after setting off the current year s income against the current year s depreciation, is negative, the same should be taken as loss but not as nil as admitted and argued by the assessee. This opinion gets strength from the Supreme Court judgment in the case of Garden Silk Wvg. Factory v. CIT [1991] 189 ITR 512 .. Thus, he treated the balance of the current year s depreciation available to the assessee (before the inclusion of undisclosed income) as business loss. The consequence of this treatment was the transformation of the character of unabsorbed depreciation into business loss and the addition of undisclosed income became a simple ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee-company was entitled to current year s depreciation of Rs. 2,93,14,847. He, however, contended that there is no dispute about this figure. He also emphasised that after adjustment of the business profits of the year, there was still a balance of Rs. 1,28,04,522 out of the current depreciation. The assessee has shown nil income for this year because under section 32(2) depreciation can be adjusted against business profits only to the extent of business profits available and the balance has to be considered only in the next assessment year. In this case, according to the assessee, the available business profits would be only to the extent of adjustment of depreciation of Rs. 2,93,14,847 minus Rs. 1,28,04,522. So, under section 32(2) the balance of Rs. 1.28 crores cannot be adjusted this year because income for this year is nil, meaning thereby that there was neither profit nor loss. The position after the addition of undisclosed income of Rs. 71.92 lakhs was also the same. The additional figure of undisclosed income increased the assessable income for this year to that extent. Consequently, the business profits available to adjust the current depreciation have increased and, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of income has to be nil because there is neither profit nor loss. It is absolutely clear that there was no profit since the available business profit would be adjusted against the depreciation leaving nil profit ; there would be no loss because the unadjusted balance of depreciation cannot be deducted this year since section 32(2) specifically stipulates that the balance of unadjusted depreciation would be treated as part of the current year s depreciation of the year following next. When there is neither profit nor loss, the income would be nil. Proceeding further, he contended that the position would be the same even after the inclusion of the undisclosed income because of the fact that the admissible current depreciation is much more than the business income including the undisclosed income. When there is nil income both in the regular assessment as well as under section 158BC, there is no undisclosed income which could be taxed. The total aggregate income for the block assessment years as fixed in the assessment order inclusive of undisclosed income was the loss of Rs. 11,13,75,788 as against the assessed total loss of Rs. 12,59,78,540 for the assessment years falling withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cted during the search adjusted against the loss that was available in books or unabsorbed depreciation that was available in books in terms of column figures would defeat the purpose of the law itself. In the expression undisclosed income , the word income always includes loss also as defined in Chapter XIV-B. So long as the disclosed loss is reduced due to addition or undisclosed income, the quantum difference is a positive figure which should be brought to tax. In the case of ITO v. Lakshmi Cotton Traders (I. T. A. No. 295/Hyd/1989), Hyderabad Bench B , of the Tribunal has upheld the view that penalty can be levied even in cases where assessed income and returned income are loss. Loss includes depreciation in the case of block assessments, as the columns of return would show. The column B should depict total undisclosed income along with disclosed income all of them resulting in a loss. Column D should reflect assessed or returned loss. They cannot be depicted as nil , as claimed by the assessee. In support of his contentions, the learned departmental representative relied on the decision of the Supreme Court in the case of Lohia Machines Ltd. v. Union of India [1985] 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be neither profit (because the available current year s depreciation has been adjusted against the total current year s business profits) nor loss (because the balance of the current year s depreciation ceases to be the allowance of the current year and becomes, consequent to the deeming provision in section 32(2), the allowance of the following previous year). This view of ours is strengthened by the decision of the Supreme Court in the case of Garden Silk Weaving Factory [1991] 189 ITR 512 and that of the Bombay High Court in the case of Ravi Industries Ltd. [1963] 49 ITR 145. However, the Assessing Officer has relied on the above cited decision of the Supreme Court, stating that depreciation loss and business loss are the same. The Assessing Officer has misread the said decision and quoted it out of context. In this connection, the observations of the Andhra Pradesh High Court in the case of V. V. TransInvestments (P.) Ltd. v. CIT [1994] 207 ITR 508, which are extracted below, are also relevant (page 539) : . the finding of the Special Bench that loss includes unabsorbed depreciation was contrary to the provisions of the Income-tax Act. The reliance placed by the Special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds has to be shown in column B . The difference between columns D and B would represent the concealed income. The assessee s contention for these years is different. It is contended that there is no positive income at all for any of the years even after inclusion of undisclosed income. On the other hand, it is the contention of the Revenue that the business loss has been overstated by Rs. 15,26,105 and to that extent there is concealed income. After considering the rival submissions of the parties as well as the relevant provisions of the Act, we are of the view that the computation of concealed income under section 158BB envisages a positive figure of assessment on the basis of the search materials. Therefore, it is to be seen whether such a positive figure is shown in the assessment order. We find that the total aggregate income is a loss of Rs. 11,13,75,788. This does not satisfy the provisions of the section enabling one to compute the undisclosed income strictly in accordance with the provisions of the Act. We have also looked into the authorities wherein it has been held that for certain purposes income would include loss also. Those cases pertain to the concept of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lt in a demand to income tax in praesenti, but only reduces the quantum of unabsorbed depreciation and losses available for set off in the prospective assessment years to the extent of the undisclosed income. The first ground on which the above proposition is made by the assessee is that the addition made by way of undisclosed income should be adjusted against the available balance of the current year s depreciation as per the provisions of section 32(2), since the computation of income both for the purpose of aggregation as well as in the regular assessment should be by applying the provisions of Chapter IV of the Act, which contains section 32. Therefore, according to the assessee-company, the unabsorbed depreciation cannot form part of the loss or figures shown in the various columns provided in Form No. 2B return. As a result, according to the assessee-company, where the depreciation admissible for the current year exceeds the business profits of the year, the income shall be nil and accordingly for the assessment years 1994-95 and 1995-96, the income under section 158BB as well as the income as per regular assessments would be nil . The assessee-company reinforces the princ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne such exception is provided in Explanation (a) given to section 158BB(1), which reads as under Explanation.-For the purposes of determination of undisclosed income,- (a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of Chapter IV without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32. Another exception is given as sub-section (4) of section 158BB. It is also reproduced below : (4) For the purpose of assessment under this chapter, losses brought forward from the previous year under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32 shall not be set off against the undisclosed income determined in the block assessment under this Chapter, but may be carried forward for being set off in the regular assessments. The two exceptions noticed above, do not allow the adjustment of any depreciation under section 32(2). Section 32(2) is excluded from the ambit of Chapter XIV-B not only for computing the undisclosed income for each previous year included i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of assessment and determination of business loss, carry forward and set off of unabsorbed business loss and depreciation and the like. The arithmetical frame-work for the computation of undisclosed income of the block period in accordance with the provisions contained in section 158BB is manifest in Part II of Form No. 2B return of undisclosed income. In columns (B) and (D) therein, what is provided is losses without any distinction made for unabsorbed depreciation. The current depreciation pointed out by the assessee-company is nothing but unabsorbed depreciation in specie. Losses , in the light of the above mentioned Supreme Court decisions include unabsorbed depreciation also. For the reasons stated in paras. 7, 8 and 9 above (pages 43 to 45), it is not possible to agree to the view that current depreciation could be adjusted under section 32(2) against the undisclosed income, so as to make the undisclosed income nil . Therefore, the first ground of the assessee-company is liable to be rejected. The second ground urged by the assessee-company is that for the assessment years 1991-92, 1996-97 and 1997-98 have resulted in business losses even after the inclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Assessing Officer is Rs. 1,46,02,752. This undisclosed income by itself, when considered independent of the regularly assessed loss of the assessee-company is a positive income. This positive income converts into a negative income only when it is merged into the unabsorbed loss of the assessee-company, determined in the regular assessments. Clause (b) of section 158B and Explanation (b) to section 158BA(2) read together, do not provide for such a merger. Undisclosed income stands on its own legs provided by the statute. Undisclosed income when aggregated to the income assessed in the regular assessments, the ultimate income of the assessee may increase or the accumulated loss may reduce. This is an accounting concept. But this concept is not applicable to the case of taxation of undisclosed income as it cannot be merged with disclosed income ; the income or loss considered in the regular assessments. The basis of the assessee s contention of positive income is the integration of undisclosed income with disclosed income , which is not permitted in the Scheme of Chapter XIV-B. This position is clear from the computation format of undisclosed income provided in Part I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essary that the aggregate income computed in a block assessment should be a positive income, so as to attract levy of tax under section 113 of the Income-tax Act, 1961, on the amount of undisclosed income determined in that block assessment ? R. Swarup (Vice-President).-As we differ in opinion, after due deliberation on the point in adjudication in this appeal, we refer the matter to the President, Income-tax Appellate Tribunal, under section 255(4) of the Incometax Act, 1961, for nominating a Third Member to resolve the following points of difference :- (1) Whether, on the facts and circumstances of the case, the Assessing Officer is correct in treating the current year s unabsorbed depreciation as loss for the purpose of computation of undisclosed income under section 158BB of the Income-tax Act, 1961 ? (2) Whether block assessment can be framed where aggregated total income (including undisclosed income) determined under section 158BC for each assessment year and assessed/returned income is loss and whether tax under section 113 can be charged on the difference between the loss determined under section 158BC for each assessment year and loss assessed for each year unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nabsorbed depreciation designated as current depreciation under section 32(2) of the Income-tax Act, 1961, is available for set off against the undisclosed income determined in a block assessment ? (2) Whether, on the facts and in the circumstances of the case and in the light of the provisions contained in Explanation to sub-section (2) of section 158BA of the Income-tax Act, 1961, it is necessary that the aggregate income computed in a block assessment should be a positive income, so as to attract levy of tax under section 113 of the Income-tax Act, 1961, on the amount of undisclosed income determined in that block assessment. The assessee-company is engaged in the business of manufacturing PVC leather cloth and PVC film. A search was conducted at the business premises of the assessee-company and the residences of its directors and company executive on October 8, 1996, and in the course of the search, certain incriminating documents, mainly by way of a diary, was seized from the premises of Shri H. Raviraj, company executive and nephew of the chairman and managing director of the assessee-company. In the course of the search itself, the assessee-company was confronted with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -93 Nil 1,02,58,573 16,49,855 Nil 1,02,58,573 16,49,855 7th 1993-94 Nil Nil 8th 1994-95 Nil 3,26,35,713 Nil 3,26,35,713 9th 1995-96 Nil 64,72,509 Nil 1,36,65,373 10th 1996-97 Nil 4,03,12,335 2,43,53,512 Nil 4,03,12,335 2,43,53,512 11th 1997-98 Nil Nil TotaL 25,94,956 5,54,02,344 6,97,93,055 25,94,956 5,58,27,344 7,69,85,919 Total undisclosed income for the block period = nil It may be observed from the above statement that the assessee-company has shown the undisclosed income at nil even though there are variations between the figures shown in Columns E and F on the one hand and B and C on the other hand in the table. Columns E and F relate to business loss and depreciation as per the regular returns and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 1,76,620 3rd 1989-90 19,78,079 19,78,079 4th 1990-91 10,59,936 10,59,936 5th 1991-92 75,34,823 79,59,823 6th 1992-93 1,19,08,428 1,19,08,428 7th 1993-94 24,49,921 24,49,921 8th 1994-95 3,26,35,713 3,26,35,713 9th 1995-96 64,72,509 1,36,65,373 10th 1996-97 6,46,65,847 6,46,65,847 11th (latest) 1997-98 Total (A) 25,94,956 (B) 12,51,95,399 (C) 25,94,956 (D) 13,28,13,263 Total undisclosed income for the block period = [(A)-(C)] + [(D)-(B)], i.e., (A) 25,94,956 (C) 25,94,956 Nil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined at a nil figure and the unabsorbed depreciation has to be carried forward to subsequent years. By this method, the assessee set off the unabsorbed depreciation of each year against the undisclosed income of that year and arrived at nil income for that year and thus worked out the aggregate of the undisclosed income for all the years at a nil figure. The stand of the Assessing Officer has been that, when there is only unabsorbed depreciation and there is no business loss for that year, such unabsorbed depreciation itself has to be taken as loss in terms of the requirements of Part II and Part III of the block return in Form No. 2B for working out the undisclosed income for the entire block period. In support of this view, the Assessing Officer relied upon the decision of the apex court in the case of Garden Silk Wvg. Factory v. CIT [1991] 189 ITR 512, wherein it was held that depreciation is a species of the genus of business loss even though the two are treated differently for the purpose of carry forward and set-off in subsequent years. The learned Judicial Member did not agree with the stand of the Assessing Officer. He mentioned in para. 2 at page 4 of his order that the As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of CIT v. Ravi Industries Ltd. [1963] 49 ITR 145. However, the Assessing Officer has relied on the above cited decision of the Supreme Court, stating that depreciation loss and business loss are the same. The Assessing Officer has misread the said decision and quoted it out of context. In this connection, the observations of the Andhra Pradesh High Court in the case of V. V. TransInvestments (P.) Ltd. v. CIT [1994] 207 ITR 508, which are extracted below, are also relevant (page 539) : . the finding of the Special Bench that loss includes unabsorbed depreciation was contrary to the provisions of the Income-tax Act. The reliance placed by the Special Bench on the observations of the Supreme Court in Garden Silk Wvg. Factory v. CIT [1991] 189 ITR 512 is misplaced. We are unable to accept the contention of the learned Departmental Representative on this point, since the requirement in Part III of Form No. 2B supports the assessee s contention that unabsorbed depreciation cannot form part of the figures shown in the various columns. We, therefore, accept the contention that the computation of income at nil in those years where the depreciation admissible for the current ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regation of losses computed under section 143. In such cases, it has been provided that undisclosed income would be the total income under section 158BB as increased by the losses under section 143. Hence, it would be difficult to hold that envisaging losses under section 158BB was a mere omission. The intention seems to be only to levy taxes on those who have positive income which was unearthed by search. If the aggregate under section 158BB is a loss, prima facie, a loss cannot attract tax. That may be the reason why the Legislature left out of the purview of section 158BB cases like that of the assessee where the aggregation results in a loss. The learned Accountant Member on the other hand was of the view that the unabsorbed depreciation of any year is part of loss and for this proposition, he relied, as was done by the Assessing Officer, upon the decision of the apex court in the case of Garden Silk Wvg. Factory v. CIT [1991] 189 ITR 512 and also the decision of the apex court in the case of V. V. Trans-Investments (P.) Ltd. v. CIT [1999] 237 ITR 777. He also relied upon clause (a) of Explanation to section 158BB and held that in view of these provisions, the brought forw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax prescribed under section 113 . . . The learned Accountant Member also referred to Explanation in sub-section (2) of section 158BA, which has been inserted retrospectively, to make clear the insulation of the undisclosed income from income assessed in the regular assessments. For the above reasons, the learned Accountant Member held that as the aggregate losses (inclusive of unabsorbed depreciation of each year) are less than the aggregate losses as per the regular assessments, there is a positive undisclosed income as worked out by the Assessing Officer and accordingly, the determination of the undisclosed income at Rs. 1,46,02,756 as done by the Assessing Officer was upheld by him. Before me, learned counsel for the assessee, at the outset, pleaded that the conclusions arrived at by the learned Judicial Member in favour of the assessee can be defended even by a reasoning different from that adopted by him and in support of this proposition, he relied upon the decision of the Tribunal in the case of Ajay Gupta v. Asstt. CIT [1999] 240 ITR (AT) 78 (Chand). He confirmed that there was no dispute about the computation of the undisclosed income at Rs. 1,46,02,756. He, how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion under section 32(1). In this context, the learned counsel for the assessee has also relied upon the decision of the apex court in the case of Garden Silk Wvg. Factory v. CIT [1991] 189 ITR 512 and mentioned that depreciation is a notional expenditure and should be set off against all income, and that in this case the apex court held that in the case of the depreciation allowable in the hands of the registered firm, the unabsorbed depreciation can be apportioned to the partners and can be allowed even in their hands against their personal income. In the light of the ratio of this decision of the apex court, it is pleaded that depreciation can travel beyond the boundaries of the assessed incomes as per regular returns and can be adjusted even against the undisclosed income worked out on the basis of the block return. It is pleaded that in the absence of any prohibition like that in respect of the set off of unabsorbed depreciation under the provisions of section 32(2), the deduction for current depreciation of each year comprised in the block period against the undisclosed income of that year has to be allowed in the light of the ratio of the decision of the apex court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earlier losses and in the latter case there is no such increase, as no losses were assessed in the regular assessments. The learned Departmental Representative, on the other hand, relied mainly on the format of the prescribed block return in Form No. 2B, and particularly Parts II and III thereof. He invited our attention to the columns of Part II of Form No. 2B and has also filled the said Part II with the figures computed by the Assessing Officer in the block assessment order. The said Part II as filled up by the learned Departmental Representative, with the computed figures (not the figures returned by the assessee-company) reads as follows : PART II Computation of total undisclosed income Previous year (chronologically) Assessment year Total income including undisclosed income computed under section 158BB1 Returned/assessed as on the date of search/ requisition2 Total income (Rs.) Losses3 Total income (Rs.) Losses3 Source Amount (Rs.) Source Amount (Rs.) 1st earliest 1987-88 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d against that previous year. 3. Losses of the year remaining after set off under Chapter VI. It may be noted that the undisclosed income is computed by the Assessing Officer at Rs. 1,46,02,752 as against the undisclosed income returned by the assessee in the block return of Rs. 76,17,864. As per the computation given by the learned Departmental Representative before me, the yearwise details of the undisclosed income are as follows : Assessment year Undisclosed income (Rs.) 1991-92 4,25,000 1994-95 20,17,816 1995-96 1,10,56,831 1996-97 8,18,585 1997-98 2,84,520 Total 1,46,02,752 The correctness of the above figures is not disputed before me or even before the two Members who heard this appeal earlier. The above figures can be tallied as follows :- Assessment year 1991-92 : Rs. 79,59,823 (D) Rs. 75,34,823 (B) Rs. 4,25,000 Assessment year 1994-95 : Rs. 3,28,71,054 (D) Rs. 3,08,53,238 (B) Rs. 20,17,816 Assessment year 1995-96 : Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same previous years on the basis of the assessed/returned incomes has to be reduced as mentioned in clauses (a) to (f) of section 158BB. It is pleaded that by this method, the reduction in the aggregate loss has also to be considered as undisclosed income along with any enhancement in positive incomes. Adverting to the contention of learned counsel for the assessee that clause (a) of Explanation to section 158BB does not prohibit the set off of current depreciation against the undisclosed income while it prohibits such set off of the unabsorbed depreciation of the earlier years, the learned Departmental Representative mentioned that the mode of computation adopted by the Assessing Officer does allow such set off of current depreciation in the computation of year wise figures taken into account in columns A and B of the above statement. It is also refuted that the prescribed return form for block assessment, i.e., Form No. 2B, is not in conformity with the statute. It is claimed that the return form is very much in consonance with the provisions of Chapter XIV-B of the Income-tax Act. The learned Departmental Representative also pleaded that in terms of the scheme of the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to agree with the learned Accountant Member, though I do not entirely subscribe to some of his observations. The admitted fact is that the assessee has disclosed additional income of Rs. 76,17,864 in the block return filed by it. This additional income has been enhanced by the Assessing Officer to a figure of Rs. 1,46,02,752. It bears repetition that there is no dispute between the two learned Members who heard the appeal on the question whether the additional income of Rs. 1,46,02,752 has been correctly computed. The only dispute is whether in view of the fact that there is an aggregate loss of Rs. 11,67,05,185 for the block period as computed by the Assessing Officer (without taking into consideration the aggregate income for the same period of Rs. 53,29,397) as evident from the table furnished before me by the learned Departmental Representative on the basis of the computed figures in the block assessment order and extracted by me hereinabove, the undisclosed income can be computed at a figure of Rs. 1,46,02,752 as done by the Assessing Officer. To understand the issue raised in this reference, it is worthwhile to look at some of the relevant provisions of Chapter XIV-B of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who have heard this appeal earlier, reads as follows : For the purpose of assessment under this Chapter, losses brought forward from the previous year under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32 shall not be set off against the undisclosed income determined in the block assessment under this Chapter, but may be carried forward for being set off in the regular assessments. Explanation to section 158BA which has been inserted by the Finance (No. 2) Act, 1998, with retrospective effect from July 1, 1995, reads as follows : Explanation.-For the removal of doubts, it is hereby declared that- (a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period ; (b) 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 ; (c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period. Section 158B which defines block period and undisclosed income reads as follows : (a) block ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defined in section 80B(5) as total income before making any deductions under Chapter VI-A is a positive income. In other words, conceptually, gross total income or total income can be a loss. Explanation 2 to section 64 mentions that for the purposes of the said section, income includes loss. So it is evident that in terms of the scheme of the Income-tax Act, total income of a particular year can be a negative figure and so the aggregate of the total incomes of all the previous years included in the block period can also be a negative figure. Under the provisions of section 158BB, the first aggregate to be computed is the total income of the previous years falling within the block period which includes returned/assessed incomes as per regular returns and regular assessments. The second aggregate to be worked out is the aggregate of the total incomes/losses of the previous years determined as per clauses (a) to (f) of section 158BB(1). In other words, this is the aggregate of the returned/ assessed incomes/losses as per regular returns and regular assessments. The difference between the first aggregate and the second aggregate has to be worked out and that difference is described i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd so the possibility of the situation at (4) above cannot entirely be ruled out. However, for the purpose of the present reference, one need not go into the theoretical possibility of situation (4) above. The assessee does not dispute the computation of the undisclosed income at Rs. 5,00,000 and Rs. 25,00,000 at situations (1) and (2) above. The dispute is only about the computation of the difference of the undisclosed income at Rs. 5,00,000 in situation (3) above. Firstly, it is contended that as the net result of the aggregation is only a loss, the working of the undisclosed income at Rs. 5,00,000 in the above example is not justified. I do not agree with this contention because, as already mentioned, the total income can be a negative figure, and as pleaded by the learned Departmental Representative, the Act does not rule out the levy of penalty for concealment even for understatement of loss in a return. The decision of the Kerala High Court in the case of CIT v. Rowther Brothers [1979] 119 ITR 353 is an authority for this proposition. At any rate, the wordings in section 158BB are that the aggregate of the total incomes of the previous years computed as per the block return h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Assessing Officer while increasing the negative aggregate total income with the assessed aggregate total loss, had converted negative total losses into positive total losses, which is incorrect. It may be observed that the above two figures are culled from the table of computed figures on the basis of the block assessment order given by the Departmental Representative and extracted by me at page 17 of this order hereinabove. Rs. 11,13,75,788 is the difference between columns B and A in the above table and Rs. 12,59,78,540 is the difference between columns D and C in the same table. It may be observed that if Rs. 12,59,78,540 is taken as a positive figure, the difference between the two figures would work out to Rs. 1,46,02,752, which is the undisclosed income determined by the Assessing Officer. In other words, the illustration given by learned counsel for the assessee only proves the confusion arising from transcribing the language of the statute into mathematical symbols. I see no merit in the above contention. The correct way of working out the undisclosed income in the present case is as follows : Aggregate total income as per the block return (-) Rs. 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment year 1995-96 in column D have been omitted in the said annexure-III. In the light of the said figures in annexure-III, it is pleaded that if the assessee had not submitted the returns for the assessment years 1994-95 and 1995-96, the undisclosed income would have been a loss as per the method adopted by the Department and only because the assessee had filed the returns for these two years and was assessed on losses, it should not be penalised. It may be observed that the assessee had worked out a hypothetical example where the aggregate of the losses in column D is less than the aggregate of the losses in column B of annexure III above. Such a situation, as I have mentioned hereinabove, should not normally arise. Even if it arises because of certain possibilities resulting from the scrutiny of the search material, I see no particular absurdity in the results obtained. It only means that an assessee who had actually incurred a loss of Rs. 3,08,53,238 for the assessment year 1994-95 and Rs. 17,47,691 for the assessment year 1995-96 had not cared to claim the benefit of getting the losses determined with a view to getting them carried forward and such losses came to the fore onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lause (ii), the amount of allowance not so set off shall be carried forward to the following assessment year, and- (a) it shall be set off against the profits and gains, if any, of any business or profession carried on by him and assessable for that assessment year ; (b) if the unabsorbed depreciation allowance cannot be wholly so set off, the amount of unabsorbed depreciation allowance not so set off shall be carried forward to the following assessment year not being more than eight assessment years immediately succeeding the assessment year for which the aforesaid allowance was first computed ; It may be observed that section 32(2) relates not only to the set off of unabsorbed depreciation of earlier years but also to set off of unabsorbed depreciation of the current year. In other words, while the income from a particular source under the head Business is being computed, if the income of that source is not sufficient to absorb the depreciation on the assets relatable to that source, the unabsorbed portion of such current depreciation can be set off against the income of the second and other sources under the head Business . This is one aspect of the matter. So the proh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ook (DPB), and it reads as follows : Statement of total income Rs. Rs. Profit before tax as per profit and loss account : 91,47,565 Less : Profit on sale of assets considered separately 2,15,95,965 1,24,48,400 Add : Sale of design rollers (refer note No. 11 of notes on accounts) 2,52,79,700 Depreciation considered separately 90,69,713 Entertainment disallowance under section 37(2) 12,960 Disallowance on credit card payments 1,619 Donations considered separately 43,025 Disallowance under section 43B 3,62,746 Damages on late payments of P. F. 32,306 Export benefit actually received during the previous year relevant to the assessment year 1994-95 2,49,80,636 5,97,82,705 4,73,34,305 Less : Depreciation as per Income-tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis. I may, however, mention that the decision of the Tribunal in the case of B. D. A. Ltd. v. Asst. CIT [1998] 65 ITD 501 (Mumbai) relates to a loss which has been computed on the basis of the search material for one of the years included in the block period and the question considered by the Tribunal was whether such a loss computed on the basis of the search material should be allowed as a setoff against the undisclosed income computed for another year in the block period on the basis of the search material. The said decision of the Tribunal deals with altogether a different situation than the one arising in the present reference. In the present reference, there are no losses which are computed on the basis of the search material for any year included in the block period. In other words, the loss and depreciation of each year are taken into account even in the block assessment order just as they are taken into account in the regular assessment order. It is only the carry forward of such business loss or depreciation that have not been allowed and this is in consonance with the provisions of sub-section (4) of section 158BB. The next plank of the order of the learned Judicial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has not specified as to what exactly is the variance between the statute and the return form. On the other hand, I find that the format used in Form No. 2B is in consonance with the language of section 158BB(1) which talks of the difference between two aggregates as indicated hereinabove. The two aggregates, as already mentioned, can either be positive or negative figures, and that is how the format speaks of the difference between columns A-C on the one hand and D-B on the other. If A-C is neutral, D-B is only a difference between the two aggregate losses and the quantification of such a difference between the two aggregate losses is warranted by the expression in section 158BB(1) as increased by the lossses . I also find merit in the contention of the learned Departmental Representative that in terms of the formula for the quantification of the undisclosed income laid down in Part II of the return in Form No. 2B, the figures in columns C and D are constants, i.e., they are culled from the returns filed by the assessee and its assessment records. They figure in Part II of the return only for the quantification of the undisclosed income. They are not affected by such quantific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 1,46,02,752 has to be brought to tax under section 113. In the light of the above discussions, my position on the points of difference framed by the learned Judicial Member is as follows : Point 1 : The Assessing Officer is correct in treating the current year s depreciation as part of loss for the purpose of computation of undisclosed income under section 158BB. Point 2 : There can be undisclosed income even in a case where the aggregate of the total income of the previous years falling within the block period is computed at a loss if the said aggregate is less than the aggregate of the losses of the previous years determined as per clauses (a) to (f) of section 158BB. When there is such undisclosed income, though by way of a reduction in the aggregate of the losses, it can be brought to tax under section 113. Point 3 : Current depreciation which is not absorbed in the regular assessment should also be taken into consideration while computing the relevant year s income included in the block period for the purposes of working out the undisclosed income. In the method adopted by the Assessing Officer for computing the undisclosed income, such unabsorbed current depreciatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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