TMI Blog2014 (11) TMI 53X X X X Extracts X X X X X X X X Extracts X X X X ..... t the result of a search and unearthing of undisclosed incomes was proving futile, if it was being pitted against the aggregate or accumulated losses, and thereby, a device to penalise such concealments was invented - where the undisclosed income has the effect of just reducing the loss, thereby, disabling the Revenue, to levy any tax, whatever - The anomaly and the remedy was found in a different form, namely, to levy "penalty", as distinguished from "tax at a higher rate", on the undisclosed income - the subject-matter is not levy of penalty u/s 271(1) of the Act – the order of the Tribunal cannot be upheld – Decided in favour of assessee. Adjustment against amount of undisclosed income - Whether he is entitled to seek adjustment against any amount of undisclosed income, noticed in the search when there is unabsorbed depreciation available to an assessee in the previous assessment years – Held that:- The irregularities committed by the assessee remain unpunished, if such a course is adopted - There is no substance in the submission - whenever an undisclosed income is noticed against an assessee, and if it is set at naught, through accumulated depreciation, the corresponding am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in respect of the regular and normal assessments, must be allowed. It was pleaded that the appellant had to its credit, the accumulated depreciation and the occasion to set off the same against profits did not arise, on account of the incurring of losses in the concerned assessment years ; and the undisclosed income, noticed in the search, must be subjected to the depreciation and other facilities under law. The Bench of the Tribunal that heard the appeal, comprised the Vice President and the Accountant Member. In their order dated June 21, 1999, the Members differed in their views. The Vice-President agreed with the contention of the appellant, whereas the Accountant Member took the contrary view. Therefore, the matter was referred to a third member, who, in turn, agreed with the Accountant Member. The appeal was accordingly dismissed. Though several questions of law were framed in the memorandum of grounds, we find that the following questions of law arise for consideration : (1) When the result of a search has the effect of only reducing the losses of an assessee for the block period, does there exists an occasion to levy tax on the undisclosed income ? ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. The first was that the unearthed income did not wipe away the loss, much less, showed any profits. The second was that, even if the amount is treated as independent income, it must be set off against the available and accumulated depreciation. Those contentions were not accepted by the Income-tax Officer and the appeal preferred before the Tribunal was dismissed. We find that those very questions arise for consideration before us also. The first question is, as to whether the amount, which is discovered during the search, has the effect of just reducing the losses for the block period ; or it can be treated as income separately for the block period ? The discussion on this aspect must start by taking note of the language employed in the charging section of the Chapter, viz., section 158BA of the Act. The heading of the section itself reads, assessment of undisclosed income as a result of search . The expression undisclosed income repeatedly occurs in almost all the sections and sub-sections in the Chapter. This is in contradiction to the term total income , as defined under section 2(45), and which alone is taxable under section 22(1). Way back in the year 1975, thei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me shown in the block period of 10 years is ₹ 15 lakhs, and the income discovered through search is ₹ 5 lakhs, that figure must be added to 15 lakhs thereby, it comes to ₹ 20 lakhs. If the taxable income for the block period was found to be ₹ 7 lakhs, it would become 7+5, i.e., 12 lakhs, after search and consequential block assessment. If, on the other hand, a sum of ₹ 6 lakhs was posted as loss, that would stand revised to 6-5 = ₹ 1 lakh, in the block assessment. If one takes into account, the language employed in section 158BA of the Act or for that matter, the entire Chapter, what becomes taxable is, the income, which is found to be at a higher figure, as a result of the search. If the undisclosed income has the effect only of reducing the loss, it is difficult to treat any component thereof, as income. This picture would be clear, if one takes into account, the judgment of the Supreme Court in Harprasad's case (supra). There is another way of looking at the issue. An assessee, who is found to have concealed a part of his income, can certainly be treated as a wrongdoer. Parliament has stipulated the methods in which, a typical wrong ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that linking concealment penalty to tax sought to be evaded can, at times, lead to some anomalies. We would recommend that in cases where the concealed income is to be set off against losses incurred by an assessee under other heads of income or against losses brought forward from earlier years, and the total income thus gets reduced to a figure smaller than the concealed income or even to a minus figure, the tax sought to be evaded should be calculated as if the concealed income were the total income. From a perusal of the extracted paragraph, it is evident that the immediate concern of the Revenue was that the result of a search and unearthing of undisclosed incomes was proving futile, if it was being pitted against the aggregate or accumulated losses, and thereby, a device to penalise such concealments was invented. The anomaly mentioned in the very first sentence of the paragraph is the one, where the undisclosed income has the effect of just reducing the loss, thereby, disabling the Revenue, to levy any tax, whatever. The anomaly, if one may call it, still remains, and the remedy was found in a different form, namely, to levy penalty , as distinguished from tax at a high ..... X X X X Extracts X X X X X X X X Extracts X X X X
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