2009 (1) TMI 8 - SC - Income Tax

Scope of S. 158BB(4) - Computation of undisclosed income of block period - Settlement Commission had erred in disallowing assessee s application for set off of inter se losses and depreciation accruing in any of the previous year in the block period against the income returned/assessed in any other previous year in the block period - impugned judgment of HC & decision of the Settlement Commission are set aside - matter remitted to Commission for fresh computation of undisclosed income u/s 158BB

Summary

Issues: Scope of Section 158BB(4) of the Income Tax Act, 1961

In this judgment, the Supreme Court was tasked with considering the scope of Section 158BB(4) of Chapter XIV-B of the Income Tax Act, 1961. The key issue revolved around the computation of undisclosed income for a block period as per the provisions of Section 158BB.

The Court delved into the details of Section 158BB, which outlines the methodology for determining the undisclosed income of a block period. It involves aggregating the total income of previous years falling within the block period based on evidence found during search or requisition, as well as other available information with the Assessing Officer. The section specifies various scenarios for computing undisclosed income, including cases where assessments have been concluded, returns have been filed but assessments are pending, or no return has been filed.

The appellants, in this case, argued that there is a distinction between current losses/depreciation and carried forward losses/depreciation, which was not adequately considered by the Settlement Commission. They contended that Section 158BB does not exclude current year losses or depreciation, only brought forward losses or unabsorbed depreciation under Section 32(2).

The Court analyzed the scheme of Section 158BB and emphasized that Chapter XIV-B operates as a standalone Code. It highlighted that the computation of undisclosed income under Chapter XIV-B does not negate the application of Chapter IV of the Act. The Court also explained the difference in assessment units between regular assessment and block assessment, emphasizing the aggregation of income/loss for each previous year in the block period.

Regarding Section 158BB(4) and its Explanation (a), the Court clarified that only brought forward losses and unabsorbed depreciation from past years are to be excluded while aggregating total income/loss for each previous year in the block period. However, the set off of losses against income assessed in other previous years within the block period is permissible.

Ultimately, the Court overturned the decisions of the High Court and the Settlement Commission, directing a fresh computation of undisclosed income for the block period under Section 158BB. The Civil Appeals were allowed with no order as to costs, providing clarity on the application of set off provisions within the block assessment framework.