2009 (7) TMI 632 - HC - Income Tax

Settlement of cases- A search was carried out in the residential and business premises of the assessee. Pursuant to search, the assessee filed a return and a revised return. However, pending assessment under section 158BC of the Act, the assessee filed an application before the Settlement Commission. The Settlement Commission determined the income of the assessee at Rs. 79,68,412 for the assessment years 1986-87 to 1996-97. The Settlement Commission granted set off to the assessee of carried forward loss from house property in the computation of long term capital gains for the year 1996-97. It also allowed deduction of interest on borrowals. Held that- the Settlement Commission had computed the profit on sale of long term capital asset and further deduction from that could be granted only in accordance with the statutory provisions. Since there is an express bar against granting set off of carried forward loss, except in the case of regular assessment under section 158BB(4), the Settlement Commission should have not allowed deduction of Rs. 5,15,389 claimed by the assessee. This deduction is to be disallowed.

Summary

Issues:
Challenge to Settlement Commission's order on block assessment for assessment years 1986-87 to 1996-97, Set off of carried forward loss in computation of long-term capital gains, Jurisdiction of High Court in interfering with Settlement Commission's order.

Analysis:

1. Challenge to Settlement Commission's Order:
The Revenue filed an original petition challenging the Settlement Commission's exhibit P-1 order settling the block assessment of the assessee for the assessment years 1986-87 to 1996-97. The Settlement Commission determined the income of the assessee at Rs. 79,68,412, including long-term capital gains. The Department objected to the set off granted to the assessee of carried forward loss in the computation of long-term capital gains for the year 1996-97. The Settlement Commission allowed the deductions claimed by the assessee, leading to the dispute. The High Court, after hearing both sides, analyzed the statutory provisions and determined that the Settlement Commission had impermissibly allowed the deduction of carried forward loss from house property. The court emphasized that the Settlement Commission, while enjoying wide discretion, is bound by statutory provisions and cannot grant deductions contrary to express bars in the law.

2. Set off of Carried Forward Loss in Computation of Long-Term Capital Gains:
The primary objection raised by the Revenue was against the Settlement Commission's decision to allow the set off of carried forward loss in the computation of long-term capital gains. The High Court pointed out that such set off was impermissible under section 158BB(4) of the Income-tax Act. The court held that since there was an express bar against granting carried forward loss deductions, except in cases of regular assessment under the Act, the Settlement Commission erred in allowing the deduction claimed by the assessee. Consequently, the court modified the Settlement Commission's order, disallowing the deduction of Rs. 5,15,389 from the long-term capital gains computed by the Commission.

3. Jurisdiction of High Court in Interfering with Settlement Commission's Order:
The counsel for the respondent cited precedents emphasizing the limited jurisdiction of the High Court in interfering with Settlement Commission orders granting immunity from prosecution. However, the High Court clarified that in this case, the Settlement Commission's decision to allow deductions was in conflict with statutory provisions. The court reiterated that the Settlement Commission must adhere to statutory constraints and cannot override express bars in the law. Therefore, the High Court intervened and modified the Settlement Commission's order to rectify the impermissible deductions while upholding certain deductions that were found to be in accordance with the law.

In conclusion, the High Court partially allowed the original petition, directing the Assessing Officer to treat the Settlement Commission's order as modified, disallowing certain deductions and demanding tax and interest accordingly.