TMI Blog2007 (3) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... Mr. H. Khinvasara as partners sharing profits and losses equally. The firm is engaged in the business of promoters and builders. The assessee firm had filed its return of income regularly upto and inclusive of asst. yr. 1996-97. The returns for the subsequent assessment years upto the assessment year fallen due before the date of search were not filed. A survey action under s. 133A was conducted on 9th Nov., 2000 initially which was converted into search and seizure. During the course of survey [sic-search) action under s. 132 of the Act certain documents, incomplete books of accounts and papers were found and seized. A notice under s. 158BC was issued by the AO which was served on the assessee-firm on 5th June, 2002 requiring the assessee to file a return of income for the block period from 1st April, 1990 to 9th Nov., 2000 in response to which the assessee furnished its block return in Form No. 2B declaring the total undisclosed income at Rs. 23,35,977. The assessee furnished a computation of undisclosed income as under: Income from business Undisclosed profit as per P L a/c for the block period from 1st April, 1990 to 9th Nov., 2000 18,35,977 Add: unexplained expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come (Rs.) ------------------------- 1998-99 36,05,229 ------------------------- 2000-01 1,11,618 ------------------------- 2001-02 5,00,000 ------------------------- 42,16,847 ------------------------- Loss ------------------------- 1997-98 14,59,426 ------------------------- 1999-00 2,19,735 ------------------------- 2001-02 2,01,709 ------------------------- 18,80,870 ------------------------- 5. The aggregate of the loss of Rs. 18,80,870 shown for the asst. yrs. 1997-98, 1999-00 and 2001-02 was not allowed to be set off against the aggregate of the undisclosed income of other years, by the AO while making the block assessment determining the total undisclosed income at Rs. 42,16,847. The AO has disallowed the set off of claim of losses amounting to Rs. 18,80,870 by discussing and observing as under: "As per provisions of s. 158BB(1)(c) where the due date of filing a return of income has expired, but no return of income has been filed, the undisclosed income of the block period shall be the aggregate of the total income of the previous years falling withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is failure on your part?' Ans: 'I accept that the books of accounts of the business concerns are not complete though most of the transactions are recorded in the same as stated earlier, because of ill-health of my father and chartered accountant, this aspect of our business was little neglected.' In view of these facts and legal proposition in this regard, the loss of Rs. 18,80,865 for asst. yrs. 1997-98, 1999-00 and 2001-02 (part period of block) is not allowable. Hence undisclosed income of the assessee gets enhanced to the extent of Rs. 18,80,865 as the same has been claimed set off by the assessee in his computation of block return filed against the undisclosed income of other years of the block period". 6. Being aggrieved with the AO's order in not allowing the assessee's claim of set off of losses amounting to Rs. 18,80,870 the assessee preferred an appeal before the CIT(A). 7. Before the CIT(A) the assessee submitted as under as reproduced by the CIT(A) in para 3 of his order. "3. In the course of appellate proceedings it was submitted as under: The AO stated that as per s. 158BB(1)(c) of the Act, the loss computed on the basis of the entries recorded in the book ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asing thereto the aggregate of the losses of such previous years. The above reduction of the total income and increase in income by the loss is to be computed in the certain manner which is given in sub-cls. (a) to (f) of s. 158BB(1). Thus, what is meant by the s. 158BB(1)(c) of the Act is that while computing the undisclosed income, only the loss which is on the basis of the entries recorded in the books of account should be added to the total income in order to find out the undisclosed income for the block period. This can be understood more clearly by following example. Total income earned in cash not disclosed to the Department-Rs. 100 Loss as per the entries in the books of account-Rs. 25. The s. 158BB would be applied by taking the aggregate total income for the entire block period which is Rs. 100 + (- Rs. 25) = Rs. 75. From this amount, the amount of loss which is computed as per the books of account should be added. Hence, the total undisclosed income would be Rs. 75 + Rs. 25 = Rs. 100 Tabulating the above figures as follows would make the picture more clear: ------------------------------------------------------------- Asst. yr. Total undisclosed income Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rajan H. Khinvasara, Prop. Manisha Enterprises on similar facts". 8. Before the CIT(A) the assessee placed reliance on a decision of Tribunal Bombay in the case of BDA Ltd. vs. Asstt. CIT (l998) 61 TTJ (Mumbai) 197 : (1998) 65 ITD 501 (Mumbai). 9. After considering the assessee's submission, the CIT(A) decided the issue against the assessee by holding as under: "I have considered the submissions of the appellant. However, I am not inclined to agree with the submissions of the appellant and also beg to differ with the findings given by the CIT(A), on similar facts, in the case relied upon by the appellant. There is no dispute as regards the fact that the appellant" had not filed its regular return of income from asst. yr. 1997-98 onwards. It is the claim of the appellant that it had incurred loss of Rs. 14.60 lakhs for asst. yr. 1997-98, which should be set off against the undisclosed income of the subsequent years despite the fact that no return of income was filed either for the asst. yr. 1997-98 or for the subsequent year. Subsequent to the amendment in s. 158BB, which deals with the computation of undisclosed income of the block period, the contention of the appellant des ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the same block period. The grounds of appeal raised on this issue therefore fail." 10. Still aggrieved the assessee is in appeal before the Tribunal. 11. The learned Authorised Representative appearing before us has submitted that in the light of a decision of Bombay Bench of Tribunal in the case of BDA Ltd. vs. Asstt. CIT the loss incurred by the assessee for the asst. yrs. 1997-98, 1999-00 and 2001-02 should have been allowed to be set off against undisclosed income of other assessment years declared by the assessee. In the course of hearing, the learned Authorised Representative for the assessee invited our attention to the written submissions of the assessee filed before the CIT(A). In support of his case, the learned Authorised Representative for the assessee relied on the following decisions: (1) BDA Ltd. vs. Asstt. CIT; (2) Singhania Polyster (P) Ltd. vs. Asstt. CIT (2005) 96 TTJ (Lucknow) 614. 12. In the written submissions of the assessee filed before the CIT(A), the assessee has quoted paras 7, 8, and 9 of the Tribunal's order in the case of BDA Ltd., where the Hon'ble Tribunal has considered the main provision of sub-s. (1) of s. 158BB r/w Expln. (a) below su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in his statement recorded under s. 132(4) of the Act as well as in the course of block assessment proceedings; as provided under the newly inserted sub-cl. (A) of cl. (c) of s. 158BB(1) inserted by the Finance Act, 2002 with retrospective effect from 1st July, 1995. 14. We have considered the rival contentions of both the parties and have carefully gone through the orders of the authorities below. We have also deliberated upon the relevant position of law as well as the decisions cited at the Bar. 15. We first find it relevant to refer to provisions of s. 158BB(1) providing the manner of computation of undisclosed income of any block period under Chapter XIV-B of the Act. Sec. 158BB reads as under: "155BB(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 search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns under Chapter VI-A for the purposes of the said aggregation effect shall be given to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-s. (2) of s. 32; (b) of a firm, returned income and total income assessed for each of the previous years falling within the block period shall be the income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called to any partner not being a working partner: Provided that undisclosed income of the firm so determined shall not be chargeable to tax in the hands of the partners, whether on allocation or on account of enhancement; (c) assessment under s. 143 includes determination of income under sub-s. (1) or sub-s. (1B) of s. 143." 16. In the aforesaid main sub-s. (1) of s. 158BB the words "in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence" have been substituted by the Finance Act, 2002 w.e.f. 1st July, 1995 for the words "in accordance with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hered during the search. 61.3.2 The Finance Act, 2002 has amended s. 158BB to clarify that the block assessment of undisclosed income is to be based on the evidence found in the search and material or information gathered in post search inquiries made on the basis of evidence found in the search. 61.4 As per cl. (a) of sub-s. (1) of s. 158BB as it existed, the aggregate total income of the block period including the undisclosed income was to be adjusted by the income or loss already assessed in regular assessments. However the clause does not specify the date by which such assessments should be completed. 61.4.1 The Finance Act, 2002, has amended cl. (a) to clarify that the aggregate total income is to be adjusted by the income or loss assessed in assessments completed prior to the date of commencement of the search or the date of requisition. 61.5 Clause (b) of sub-s. (1) of s. 158BB states that the aggregate total income is to be reduced or adjusted by the income or loss disclosed in returns filed under s. 139 or under s. 147, in cases where no assessments have been completed on the basis of such returns till the date of search. However, there can be cases where returns h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the AO and relatable to such evidence. Such aggregate of the total income is, thereafter, to be adjusted by the income or loss, as the case may be. determined as provided under sub cls. (a) to (f) thereto, to arrive at the undisclosed income chargeable to tax for the block period. In other words, such aggregate of the total income is thereafter to be reduced by the aggregate of the total income of any previous years falling within the block period, as provided under cls. (a) to (f) thereto, or as the case may, is to be increased by the aggregate of the losses determined of such previous years falling within the block period as provided in cls. (a) to (f) thereto. The old cl. (c) prior to its substitution by the Finance Act, 2002 with retrospective effect from 1st July, 1995 had provided that where the due date for filing of return of income has expired but no return of income has been filed, the aggregate of total income shall be increased, or as the case may be, shall be reduced, by the "nil" amount. Therefore, under the then existing provision of cl. (c) of sub-s. (1) of s. 158BB where no return has been filed and the due date for filing the return has expired, no adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the date of search or requisition where such entries result in computation of loss for any previous year falling in the block period. To put it in other words, in all cases, where the due date of filing a return of income has expired, but no return of income has been filed, the loss determined on the basis of entries as recorded in the books of accounts and other documents maintained in the normal course on or before the date of search or requisition where such entries result in computation of loss for any previous year falling within the block period shall be added back to the aggregate of total income determined in the manner provided in main sub-s. (1) of s. 158BB to arrive at the undisclosed income chargeable to tax for the block period. The intention of the legislature in inserting this sub-cl. (A) to cl. (c) of sub-s. (1) of s. 158BB is thus clear that the assessee, who is subjected to search under s. 132 or requisition under s. 132A, shall not get the benefit of set off of the loss of any previous year. which is determined on the basis of the entries as recorded in the books of accounts and other documents maintained in the normal course on or before the date of search or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,870 is to be added back to the aggregate of total income of the previous year falling within the block period amounting to Rs. 23,35,997. In the present case, the positive income for the asst. yrs. 1998-99, 2000-01 and 2001-02 was shown at Rs. 42,16,847 and loss for asst. yrs. 1997-98, 1999-00 and 2001-02 is shown at Rs. 18,80,870. and the difference of positive income of Rs. 42,16,847 and negative income of Rs. 18,80,870. coming to Rs. 23,35,997. has been shown as undisclosed income of the block period in the block return filed by the assessee. The aggregation of total income of all the previous years falling within the block period as computed under main s. 158BB(1) comes to Rs. 23,35,977. and the same has also been treated as undisclosed income of the block period chargeable to tax, by the assessee. In other words, the assessee has disclosed undisclosed income at Rs. 23,35,977 by aggregating positive income of Rs. 42,16,847 and negative income of Rs. 18,80,870 as detailed above. In the block return, the assessee has not increased the aggregate of the total income amounting to Rs. 23,35,977 by the aggregate of the losses amounting to Rs. 18,80,870. The AO has increased the aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which were maintained by the assessee in the normal course were not complete, though most of the transactions were claimed to be recorded in the seized books of accounts. The assessee had given a reason of illness of his father as well as of the chartered accountant for not completing and finalizing the books of accounts maintained by the assessee from the asst. yr. 1997-98 onwards till the date of search. It is the assessee's case that the seized books of accounts and other documents did reveal the loss arising to the assessee in the asst. yrs. 1997-98, 1999-00 and 2001-02. 25. In the statement of facts annexed with the memorandum of appeal, the assessee has narrated the facts as under: "1. M/s Manisha Constructions is a registered partnership firm consisting (1) Shri Rajan H. Khinvasara (2) Shri H.U. Khinvasara as partners sharing' profits and losses equally. The firm is engaged in the business of Promoters and builders. The firm has undertaken a construction project at Hadapsar named as Manisha Blitz. 2. The assessee firm had filed its returns of income regularly upto and inclusive of asst. yr. 1996-97, however, the returns for the subsequent years were remained to be fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... countant of the assessee firm. He further submitted that certain documents, incomplete books of accounts and papers were found and seized during the search. From these facts, it is thus clear that the books of accounts and papers found during the course of search were maintained by the assessee in the normal course, for the year pertaining to the asst. yr. 1997-98 onwards, and the return of income for asst. yr. 1997-98 onwards could not be filed due the aforesaid reasons as explained by the assessee. 27. Further, a useful reference may also be made to the ground No. 1 taken by the assessee before the CIT(A) which reads as under: "It should be held that on the facts and circumstances of the case the learned Asstt. CIT is not justified in disallowing the set off of losses claimed in the computation of the inc0nte of the block assessment period, in view of the entries for working out the losses for the concerned years having been recorded in the books of account found and seized as contemplated under s, 158BB(1)(c) of the IT Act." 28. On reading the same, we find that the assessee has advanced a case that the loss for the concerned years has been worked out on the basis of entri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irst to be determined on the basis of the main charging section i.e. sub-s. (1) which should be the aggregate' of total income to be computed on the basis of the evidence found as a result of search or requisition of books of accounts. He has further mentioned that in the statement recorded under s. 32(4) the assessee has only admitted the incompleteness of the books of accounts but nowhere stated that the books of accounts were altogether not maintained by him. He has further clarified that the admitted position was that the books of accounts have been maintained by the assessee in the regular course of business but they were not complete on the date of search. He has emphasized that the assessee was a regular taxpayer and filed the returns from asst. yrs. 1991-92 to 1998-99 in the regular course which were assessed, hence the requisite benefit had already been given by the AO while computing undisclosed income of the assessee. He has also clarified the stand taken by assessee that while computing the undisclosed income, the assessee himself has not taken the benefit of the incomes which were not returned till the date of search. He has clarified that under the head "returned/asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. CIT heavily relied upon by the learned counsel for the assessee, would be of no help to the assessee, inasmuch as these decisions were rendered on an interpretation of cl. (a) of Explanation to s. 158BB(1) and cl. (c) as it stood prior to its substitution by the Finance Act, 2002 with retrospective effect from 1st July, 1995 to s. 158BB(1), as it would be clear from paras 7 to 9 of the order in the case of BDA Ltd. which is reproduced as under: "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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain parts or periods 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 is to be computed in accordance with Chapter IV of the Act (ss. 14 to 59). Explanation (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 IV 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 aggregating the results of the different previous years falling w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n or 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 untrammelled 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 in the regular assessments made prior to the date of search under the normal provisions of the Act and in that very nature of things such losses, determined and allowed to be carried forward, have no place in the context of a block ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mining the undisclosed income. If the assessee has already filed a return showing positive income in respect of a previous year or years falling within the block period, the income declared in such return or returns will be reduced from the aggregate undisclosed income, where assessments on such return or returns have not been made till the date of search. This is provided in cl. (b). Clause (cl says where no such return has been filed before the due date, no reduction will be possible. The provisions are intended to eliminate double taxation of the same income. Similarly double allowance of the same loss is also avoided by these provisions. Clause (cl does not admit of the argument advanced by Mr. Sudhir Chandra to the effect that the returns for the asst yrs. 1989-90, 1993-94, 1994-95 and 1995-96 for which losses have been computed in the block assessment, not having been filed till the date of search, the losses computed for those years cannot be set off against the income computed in respect of the other years falling within the block period." 32. The decision in the case of Singhania Polyster (P). Ltd. has been given by following the decision in the case of BDA Ltd. On readi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return of income has been filed, is concerned. Therefore, after the amendment made by the Finance Act, 2002 with retrospective effect from 1st July, 1995 in cl. (c) of s. 158BB(1), the claim of the assessee that the losses as determined on the basis of entries as recorded in the seized books of accounts of the assessee maintained in the normal course on or before the date of the search or requisition for any previous year for which no return was filed by the due date should not be added back to the aggregate of the total income of the block period computed in the manner provided in main sub-s. (1) of s. 158BB for the purposes of arriving at the undisclosed income of the block period, is without any merit. 33. Though the decision in the case of Singhania Polyster (P) Ltd. has been rendered on 4th Sept., 2003 by following the decision in the case of BDA Ltd., the newly inserted cl. (c) and sub-cls. (A) and (B) thereto by the Finance Act, 2002 with retrospective effect from 1st July, 1995 were not brought to the notice of the Tribunal, and the Tribunal has thus proceeded to decide the issue by following the decision in the case of BDA Ltd., which was rendered in the light of old cl. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss of any previous year envisaged under sub-cl. (A) of cl. (c) of s. 158BB(1) was not at all the subject-matter of consideration before the Tribunal in both the cases viz. BDA Ltd. and Singhania Polyster (P) Ltd. which, as already discussed above, were rendered in the context of the provisions of old cl. (c) of s. 158BB(1) of the Act. 34. Further, the learned counsel for the assessee has also submitted that the issue based on identical facts and circumstances in the case of Asstt. CIT vs. Manisha Enterprises (Prop. Regan Khinvasara) in ITA No. 201/Pn/2004 dt. 29th Dec., 2006 has been decided in favour of the assessee by the Tribunal 'A' Bench, Pune, directing to set off of losses for the asst. yrs. 1999-2000 and 2000-01 against the undisclosed income of other previous years falling within the block period. The assessee's submissions in that case were narrated by the Tribunal in para (5) of its order dt. 29th Dec., 2006. The aforesaid para (5) of the Tribunal's order narrating the assessee's submissions has been set out above in para (29) of this order. The operative portion of the Tribunal's decision in that case read as under: "6. We have heard the submissions of both the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly to losses under Chapter VI (s. 72) and unabsorbed depreciation determined and permitted to be carried forward in regular assessments and does not apply to adjustment of the loss computed in respect of a particular previous year falling within the block period against the income computed in respect of the other years falling within the block period. Such adjustment or set off, in fact, cannot be considered to fall under the category of brought forward losses under Chapter VI at all. In this respect, both cl. (a) of the Explanation to sub-s. (1) of s. 158BB and sub-s. (4) thereof convey the same idea. Sec. 158BB(1)(c) did not admit of the argument advanced by the Department to the effect that the returns for the asst. yrs. 1989-90, 1993-94, 1994-95 and 1995-96, for which losses had been computed in the block assessment, not having been filed till the date of search, the losses computed for those years could not be set off against the income computed in respect of the other years falling within the block period. For the above reasons, the assessee's claim was accepted and the losses for the asst. yrs. 1989-90, 1993-94, 1994-95 and 1995-96 as computed in the block assessment, we ..... X X X X Extracts X X X X X X X X Extracts X X X X
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