2007 (3) TMI 126 - HC - Income Tax

Block assessment - Assessee claimed for set off loss as well as the unabsorbed depreciation u/s 32(2) against the undisclosed income - Held that assessee claimed not sustained

Summary

Issues:
1. Interpretation of provisions of Section 158-BB regarding unabsorbed depreciation and business loss in block assessment.
2. Whether unabsorbed depreciation and business loss can be set off against undisclosed income in block assessment.
3. Discrimination in treatment of cases where no return of income is filed.
4. Application of Section 158-BB(4) in determining undisclosed income.
5. Consideration of set off or brought forward losses under Chapter VI or unabsorbed depreciation under Section 32(2) in block assessment.

Analysis:
The judgment delivered by the High Court of Madras involved income tax assessees who filed writ petitions challenging the rejection of their claim for unabsorbed depreciation and business loss during the block period from 1.4.1986 to 11.10.1996. The Settlement Commission rejected the claim based on Section 158-BB(4) and Explanation-A to Section 158-BA(2), stating that the assessment under Chapter XIV-B should be separate from regular assessments, disallowing set off of unabsorbed loss and current depreciation in block assessment.

The petitioners argued that losses in one part of the block period should be set off against income in another part, claiming discrimination if their plea was rejected. The senior counsel contended that Section 158-BB(4) did not prohibit set off of losses or unabsorbed depreciation against income in different years of the block period. They cited a Mumbai Tribunal decision supporting their position.

The court disagreed with the counsel's interpretation, emphasizing that Chapter XIV-B provides a distinct procedure for search cases, separate from regular assessments. Section 158-BB(4) explicitly disallows set off of losses or unabsorbed depreciation in block assessments, allowing such set off only in regular assessments where returns are filed. The court found no ambiguity in the provisions and rejected the plea for set off in block assessments.

The court also referenced a Bombay Tribunal decision where set off was allowed for an assessee who had not filed a return, contrasting it with the present case where the assessee had filed a return claiming set off. Despite the reference, the court upheld the rejection of the plea based on the clear provisions of Chapter XIV-B, dismissing the writ petitions without costs.