TMI Blog2003 (9) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (hereinafter referred to as the 'Act'), resulting into seizure of incriminating documents, cash and other assets for which respective Panchanamas were prepared. The assessee was called upon by the AO through notice under s. 158BC of the Act to file return for the block period 1st April, 1988 to 28th Nov., 1998, corresponding to asst. yrs. 1989-90 to 1998-99. The assessee in pursuance to the said notice filed return declaring the undisclosed income at NIL. The assessment proceedings for block period commenced by issuance of notice under s. 143(2) issued on 22nd June, 2000, and during the assessment proceedings, the AO has taken note of the fact that the assessee had not filed returns of income prior to asst. yr. 1995-96 and for asst. yr. 1995-96 to asst. yr. 1997-98, the assessee filed return showing loss at Rs. 45,948, Rs. 20,000, Rs. 49,064, respectively, and these returns were said to have been processed under s. 143(1)(a) of the Act on the returned loss. 3. It was noted by the AO that search resulted into set of papers containing tax audit report under s. 44AB in respect of another case in the name of M/s Radha Exports Ltd. and during assessment proceedings, it was admitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed income or assessment. (Rs.) increase (Rs.) as per earlier assessed or returned loss (Rs.) ------------------------------------------------------------ 1989-90 (-)24,82,540 1990-91 (-) 4,94,086 1991-92 6,75,925 - 1992-93 (-) 4,15,552 1993-94 3,99,693 - 1994-95 12,84,762 1995-96 (-) 45,948 (-) 6,80,664 1996-97 4,71,884 (-) 20,000 1997-98 10,30,353 (-) 49,060 1998-99 (-) 6,70,539 1999-2000 2,31,001 Total 40,93,618 (-) 1,15,008 (-) 47,47,381 ------------------------------------------------------------ 4. While coming to the total of undisclosed income of the block period, the AO noted that in asst. yr. 1989-90, the assessed undisclosed loss is Rs. 24,82,540, but the amou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmining the undisclosed income at Rs. 42,08,636. The contention of the learned counsel is that negative figure of Rs. 47,47,381 should be taken into account for aggregate purpose and as the said figure is more than the aggregate of undisclosed income arrived at by the AO at Rs. 44,08,626, the resultant will be loss of Rs. 5,38,755 and there will be no liability of tax under s. 113 of the Act. To support this contention, the learned, counsel for the assessee had referred to the decision of Mumbai Bench of the Tribunal in the case of BDA Ltd. vs. Asstt. CIT (1998) 61 TTJ (Mumbai) 197 : (1998) 65 ITD 501 (Mumbai) in which facts were said to be identical to the facts available in the case of the assessee and the Bench after considering the legal position had concluded that losses as computed in the block assessment had to be set off against undisclosed income computed in respect of other previous years falling within the block period. The learned counsel had referred to the relevant portions of the observation of the Bench to substantiate that the issue is entirely covered by the said decision of Mumbai Bench in the case of BDA Ltd. vs. Asstt. CIT. 8. As against it, the learned senio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... depreciation under s. 32(2) of the Act except for the limited purposes of computing deduction under Chapter VI-A. Not only this, the learned senior Departmental Representative contended further that sub s. (4) of s. 158BB further mandates that the losses determined in regular assessment shall not be carried forward and set off against undisclosed income. On the basis of above, the contention is that carry forward and set off of losses is not permitted in any situation whatsoever in block assessment. Elaborating further, he has submitted that losses determined in previous year falling within the block assessment cannot be allowed to be carried forward and set off against the undisclosed income of another previous year within the same block period nor can the losses be determined in the regular assessment being the carried forward and set off against the undisclosed income of the block period, as evident from conjoint reading of s. 80 and Expln. (a) to s. 158BB(1) as well as from sub s. (4) of s. 158BB. 10. The learned senior Departmental Representative placed reliance on the order of the recent decision in the case of Fenoplast Ltd. vs. Asstt. CIT (2002) 77 TTJ (Hyd)(TM) 806 : (2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the case of Rakesh S. Mardia vs. Dy. CIT (2002) 74 TTJ (Ahd) 836, which was also referred to by the learned. senior Departmental Representative. It was also contended by him that AO has been statutorily debarred from allowing the set off of brought forward losses while aggregating the total income and loss under sub s. (1) of s. 158BB. 13. The learned senior Departmental Representative also submitted that set off of brought forward losses is not admissible in block assessment and that can be proved by the fact that form of return of income to be filed in the block assessment is to be filled in Form No. 2-B and there is no column for claiming set off of brought forward losses, which is available in the case of regular assessee, who is supposed to file return of income in Form No. 2, which requires elaborate information to be furnished in respect of claim of set off of brought forward losses. 14. The other contention of the learned senior Departmental Representative is that in case the assessee had not complied with statutory requirement in lodging its claim for carry forward and set off of brought forward losses as per law, it cannot be allowed to get benefit of its lapse i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sentence occurring in the judgment of this Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment." 18. Learned counsel submitted that this principle was reiterated in the case of CIT vs. Sun Engineering Works (P) Ltd. (1992) 107 CTR (SC) 209 : (1992) 198 ITR 297 (SC). Giving out the factual position, the learned counsel submitted that books of account for asst. yrs. 1989-90, 1990-91, 1992-93, 1995-96 and 1998-99, falling in the block period were not found at the time of search and assessee had also not filed returns for the assessment years prior to asst. yr. 1995-96. The AO himself had computed losses at Rs. 47,47,341 for the block period and that amount of loss is in the block period itself and cannot be ignored. The contention of the learned counsel is that Rs. 5,38,755 was the difference in between the figure of losses computed by the AO and the figure of undisclosed income arrived by him for the block period and assessee is not claiming carry forward of this amount of difference, viz., loss of Rs. 5,38,555 to subsequent years. The argument of the learned senior D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... existed prior to amendment and relevant to the assessment years involved, which reads as under: "(a) 'block period': means the previous years relevant to ten assessment years preceding the previous year in which the search was conducted under s. 132 or any requisition was made under s. 132A, 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." 21. The very contention of the learned senior Departmental Representative that previous year as defined in s. 3 of the Act means the financial year immediately preceding the assessment year is not to be taken into consideration as we are concerned with the assessment of block period. The very computation of undisclosed income of the block period is prescribed by s. 158BB and relevant portions of that section are extracted hereunder: "158BB.(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of this Act, on the basis of evidence found as a result of sear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and facts of that case were identical as in the case in hand. The Bench had discussed at length and relevant position, which deals with the issue in hand had been replied in favour of the assessee and it will be beneficial to extract the relevant portion as the same will give answer to all the points raised by the learned senior Departmental Representative: "7. In our opinion, there is no prohibition against the losses of some of the previous years comprised in the block period being set off against the income of the other years comprised in the block period. Even on first principles, it is not possible to countenance the argument of the Revenue that the result of the computation of a particular period comprised in the block period has to be ignored, if such computation shows a loss. It would be the same thing as saying that in respect of a normal previous year consisting of a period of twelve months, the result of computation for the first period of six months would be ignored, if it shows a loss, and the income computed in respect of the rest of the six months only would be taken. Such an argument, if advanced in respect of an assessment of an assessee whose case is not covered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riods of the block period have to be set off or adjusted against the income earned during the remaining parts or periods thereof. 8. We now proceed to examine whether the principle of aggregation has been given effect to in Chapter XIV-B and if so, to what extent. Sec. 158BB, which we have extracted earlier, gives effect to the principle of aggregation. To paraphrase sub-s. (1), it says that the undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period. The undisclosed income of the previous years falling within the block period. The undisclosed income is to be computed in accordance with Chapter IV of the Act (ss. 14 to 59). Expln. (a) says further that for the purposes of determination of the undisclosed income, 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 VI without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under s. 32(2). Reading sub-s. (1) in conjunction with cl. (a) of the Explanation, it is clear that while aggregat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is unconnected with, the computation of the total income of an assessee under the above head. Relying on this decision, an assessee whose case is covered by the provisions of Chapter XIV-B may attempt to reduce the undisclosed income by seeking to set off the past business losses, which have been determined in the regular assessments made earlier for the years falling within the block period and which have been permitted to be carried forward to the future years. The legislature might have thought that such an attempt cannot be allowed to succeed and that the block assessment under Chapter XIV-B would have to be made untrammeled by what happened in the earlier regular assessments. The other reason why the brought forward losses under Chapter VI are excluded is because the block assessment is confined only to the determination of the undisclosed income of the block period, whereas losses to be carried forward to future years may have been determined m the regular assessments made prior to the date of search under the normal provisions of the Act and in the very nature of things such losses, determined and allowed to be earned forward, have no place in the context of a block a assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d out alone to be taken into consideration. The above analogy of the Bench is fully applicable to the factual position of the case in hand. 25. Not only this, we may also refer that CBDT vide its circular [No. 717 dt. 14th Aug., 1995-Ed.] as reported at (1995) 127 CTR (St) 21 : (1995) 215 ITR (St) 70, 98 has also dealt with situation and clarified the situation as under: "(d) Treatment of unabsorbed losses, depreciation, etc. : Brought forward losses or unabsorbed depreciation will be allowed to be carried forward and set off in subsequent regular assessments and shall not be set off in subsequent regular assessments and shall not be set off against the undisclosed income determined in the block assessment. Therefore, the total income or total losses of each previous year shall for the purpose of aggregation be taken as the total income or total losses without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under s. 32. In other words, where in the regular assessment proceedings, set off of loss or unabsorbed depreciation has been allowed in the regular assessment proceedings, the same shall be ignored for determining the undisclos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned by the assessee where assessment is not completed? (3) Whether unabsorbed depreciation which cannot be absorbed for want of profit while framing the regular assessment under s. 143(3) for the asst. yrs. 1991-92 and 1995-96, can be considered and allowed deduction out of the income for the relevant years, i.e., 1991-92 and 1995-96, while computing the income for the block period consisting of 10 years under s. 158BC of the Act? 29. The AM, who dissented with the Hon'ble Vice President also referred his own question and difference which are as under: 1. Whether on the facts and circumstances of the case and in the light of the provisions contained in Expln. (a) to sub-s. (1) and sub-s. (4) of s. 158BB of the IT Act, 1961, the unabsorbed depreciation designated as 'current depreciation' under s. 32(2) of the IT Act, 1961, is available for set off against the undisclosed income determined in a block assessment? 2. Whether on the facts and circumstances of the case and in the light of the provisions contained in Explanation to sub-s. (2) of s. 158BA of the IT Act, 1961, it is necessary that the aggregate income computed in a block assessment should be a positive income, so a ..... 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 BDA Ltd. 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 set off 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." 33. The above observation makes the position clear and view of the decision in the case of BDA Ltd. vs. Asstt. CIT is not distinguished nor overruled and that view still holds good, which is admittedly involving the factual position, which is identical to the facts before us and this fact has not been disputed by the learned senior Departmental Representative also. In view of these discussions, we are following the decision of the Mumbai Bench in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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