2011 (9) TMI 653 - HC - Income Tax

Block Assessment - Set off or carry forward of loss for p/y years from the undisclosed income determined during Search - Return for p/y were Belatedly filed - Held That - It is clear that in computing the total income or loss of the Block period the income or loss of each of the previous year has to be taken into consideration and computed in accordance with the provisions of the Act except set off or brought forward of loss under Section 32(2) of Act. The facts as regards whether on the due date the assessee had filed a return of income or had not filed any return as Nil are facts that may have to be gone into for a proper finding to be arrived at. Case referred back.

Issues Involved:
1. Validity of setting aside the block assessment under Section 158BC of the Income Tax Act.
2. Treatment of losses claimed in belated returns against undisclosed income for the block assessment years.
3. Consideration of retrospective amendment to Explanation to Section 158BB by Finance Act, 2002.

Issue-wise Detailed Analysis:

1. Validity of Setting Aside the Block Assessment under Section 158BC:
The Revenue challenged the Income Tax Appellate Tribunal's decision to set aside the block assessment made under Section 158BC for the block period ending 09.11.1995. The Tribunal directed that the total income or loss of each previous year should be computed as per the provisions of Chapter IV, even though the returns for the assessment years 1994-95 and 1995-96 were not filed. The Tribunal's decision was based on the precedent set in similar cases, including those of Shri N.Nandakumar and others, where the Tribunal allowed the assessees' claims for long-term and short-term capital losses arising from the sale of shares during the block period and directed the Assessing Officer to compute the total undisclosed income accordingly.

2. Treatment of Losses Claimed in Belated Returns Against Undisclosed Income:
The Tribunal held that the losses of the assessment year 1995-96 claimed in the belated return had to be set off against the undisclosed income for the block assessment years 1985-86 to 1995-96. The Revenue contested this, arguing that losses not permitted to be carried forward due to delayed filing of returns should not be treated as undisclosed and set off against undisclosed income under Chapter XIV B of the Income Tax Act. The Tribunal's decision to allow the set-off was based on the interpretation that the computation of total income or loss for each previous year within the block period should be in accordance with the provisions of the Act.

3. Consideration of Retrospective Amendment to Explanation to Section 158BB:
The Revenue argued that the Tribunal did not consider the retrospective amendment made to Explanation to Section 158BB by the Finance Act, 2002, effective from 01.07.1995. This amendment changed the computation of undisclosed income to be in accordance with the provisions of the Act, rather than just Chapter IV. The court noted that the amendment aimed to align the computation of total income or loss for each previous year within the block period with the broader provisions of the Act, excluding set-off of brought forward losses under Chapter VI or unabsorbed depreciation under Section 32(2).

Judgment Analysis:
The court referred to the Supreme Court's decision in E.K.Lingamurthy and another Vs. Settlement Commissioner (IT and WT) and another, which clarified that in computing the total income or loss of the block period, the income or loss of each previous year must be considered in accordance with the provisions of the Act, barring the set-off of brought forward losses or unabsorbed depreciation. The court emphasized that the amendment to Section 158BB by the Finance Act, 2002, was significant in determining the undisclosed income for the block period.

Given the Tribunal's adherence to the group case precedent and the need to consider the retrospective amendment, the court found it appropriate to remit the matter back to the Assessing Officer for re-assessment. The Assessing Officer was instructed to consider the Supreme Court's decision and the amended provisions of Section 158BB in their entirety.

Conclusion:
The Tax Case Appeals were disposed of with the direction to the Assessing Officer to re-assess the cases in light of the Supreme Court's interpretation and the retrospective amendment to Section 158BB. The court clarified that the decision should be made in accordance with the amended provisions of the Act, ensuring that the computation of total income or loss for each previous year within the block period is accurately determined.

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