TMI Blog1997 (9) TMI 614X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment at this stage. Since we also felt so, we heard arguments only in respect of this ground. 3 The block period consists of the assessment years 1986-87 to 1995-96 (10 years) and the period from 1-4-95 to 2-8-95, the date of search. The details of the income returned, profit or loss assessed for the different previous years, etc., are as below : Assessment year Income returned (Rs.) Income assessed (Rs.) 1986-87 N.A. N.A. 1987-88 N.A. N.A. 1988-89 N.A. N.A. 1989-90 Loss 11,62,679 Loss 11,62,679 1990-91 85,360 85,360 1991-92 39,01,035 52,93,894 1992-93 Loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sub-section (4) of section 158BB in support of this submission, which according to him, made the position beyond doubt. He further contended that as per section 158BA(2), the tax is to be charged on the undisclosed income of the entire block period taking the same as one unit of assessment and it is not as if the losses in respect of any of the assessment years included in the block period have to be ignored. 5. Mr. Sudhir Chandra, the learned senior departmental representative, raised two main points. He first asked the question whether it is at all possible to imagine that the object of the search and the provisions relating to the assessment of search cases could be to arrive at a net loss for the block period. He submitted that the whole exercise is to unearth the undisclosed income of the assessee and it would be paradoxical to make a search and then arrive at a net loss in the assessment. His second point was that in any event the losses cannot be set off in the manner claimed by the assessee because of the clear prohibition contained in clause (c) of sub-section (1) of section 158BB. He relied on the observations at page 2 of the assessment order in this regard. 6. Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng a return of income has expired but no return of income has been filed, as nil; (d) where the previous year has not ended or the date of filing the return of income under sub-section (1) of section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents mainained in the normal course on or before the date of the search or requisition relating to such previous years; (e) where any order of settlement has been made under sub-section (4) of section 245D, on the basis of such order; (f) where an assessment of undisclosed income had been made earlier under clause (c) of section 158BC, on the basis of such assessment. 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; (b) of a firm, returned income and total income assessed for ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Chapter, all other provisions of the Income-tax Act shall apply to an assessment made under the Chapter. 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 by Chapter XIV-B, cannot be accepted, as it is a well-accepted and recognised position that the computation must be made with reference to the whole period of twelve months comprised in the previous year and the tax is payable only if such computat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Section 158BB, which we have extracted earlier, gives effect to the principle of aggregation. To paraphrase sub-section (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 undiscloed income is to be computed in accordance with Chapter IV of the Act (sections 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 section 32(2). Reading sub-section (1) in conjunction with clause (a) of the Explanation, it is clear that while aggregating the results of the different previous years falling within the block period, the losses have also to be taken into account. It may very well happen that while determining the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the very nature of things such losses, determined and allowed to be carried forward, have no place in the context of a block assessment framed after the search. The two streams of assessment are kept apart and one is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 clause (b). Clause (c) 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 (c) does not admit of the argument advanced by Mr. Sudhir Chandra to the effect that the returns for the assessment years 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. 10. The answer to Mr. Sudhir Chandra s poser whether the cumbersome exercise of a search is undertaken merely to compute the assessee s losses for being ..... X X X X Extracts X X X X X X X X Extracts X X X X
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