2007 (3) TMI 322 - AT - Income Tax

Summary

Issues Involved:
1. Addition of Rs. 18,80,870 as undisclosed income.
2. Interpretation and application of Section 158BB(1)(c) regarding set-off of losses.
3. Validity of disallowing set-off of losses without proper reasoning.

Issue-Wise Detailed Analysis:

1. Addition of Rs. 18,80,870 as Undisclosed Income:
The assessee, a partnership firm engaged in the business of promoters and builders, had not filed returns for certain assessment years within the block period. During a search under Section 132, documents and incomplete books of accounts were seized. The assessee declared an undisclosed income of Rs. 23,35,977 in its block return. The AO, however, did not allow the set-off of losses amounting to Rs. 18,80,870 for the assessment years 1997-98, 1999-00, and 2001-02, resulting in an increased undisclosed income of Rs. 42,16,847. The AO's disallowance was based on the absence of entries in the seized books indicating these losses and statements made by the assessee during the search.

2. Interpretation and Application of Section 158BB(1)(c) Regarding Set-off of Losses:
The assessee argued that the AO misinterpreted Section 158BB(1)(c). The assessee contended that the section allows for the set-off of losses determined from entries in the books of accounts maintained in the normal course. The CIT(A), however, upheld the AO's decision, stating that the specific amendment to Section 158BB(1)(c) denies the set-off of losses where no returns were filed. The CIT(A) emphasized that the losses computed on the basis of entries in the seized books of accounts maintained in the normal course would not be available for set-off against undisclosed income due to the amendment.

3. Validity of Disallowing Set-off of Losses Without Proper Reasoning:
The assessee claimed that the AO and CIT(A) failed to provide proper reasoning for disallowing the set-off of losses. The Tribunal, after considering the submissions and relevant legal provisions, upheld the CIT(A)'s decision. The Tribunal noted that the seized books of accounts were maintained in the normal course but were incomplete. The Tribunal found that the losses for the relevant years were determined based on these incomplete books and documents, which were maintained in the normal course. The Tribunal concluded that the losses should be added back to the aggregate total income due to the specific provisions of Section 158BB(1)(c)(A), which were applicable as the due date for filing returns had expired without the returns being filed.

Conclusion:
The Tribunal upheld the CIT(A)'s order confirming the addition of Rs. 18,80,870 as undisclosed income, disallowing the set-off of losses for the assessment years 1997-98, 1999-00, and 2001-02. The Tribunal found that the losses were determined based on entries in the seized books of accounts maintained in the normal course, and due to the specific provisions of Section 158BB(1)(c)(A), these losses should be added back to the aggregate total income. The appeal filed by the assessee was dismissed.