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TMI Blog2003 (9) TMI 332X X X X Extracts X X X X X X X X Extracts X X X X ..... v., 1998, under s. 132 of the IT Act, 1961 (hereinafter referred to as the 'Act'), resulting into seizure of incriminating documents, cash and other assets for which respective Panchanamas were prepared. The assessee was called upon by the AO through notice under s. 158BC of the Act to file return for the block period 1st April, 1988 to 28th Nov., 1998, corresponding to asst. yrs. 1989-90 to 1998-99. The assessee in pursuance to the said notice filed return declaring the undisclosed income at NIL. The assessment proceedings for block period commenced by issuance of notice under s. 143(2) issued on 22nd June, 2000, and during the assessment proceedings, the AO has taken note of the fact that the assessee had not filed returns of income prior to asst. yr. 1995-96 and for asst. yr. 1995-96 to asst. yr. 1997-98, the assessee filed return showing loss at Rs. 45,948, Rs. 20,000, Rs. 49,064, respectively, and these returns were said to have been processed under s. 143(1)(a) of the Act on the returned loss. 3. It was noted by the AO that search resulted into set of papers containing tax audit report under s. 44AB in respect of another case in the name of M/s Radha Exports Ltd. and during ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as per earlier assessed or returned loss (Rs.) ------------------------------------------------------------ 1989-90 (-)24,82,540 1990-91 (-) 4,94,086 1991-92 6,75,925 - 1992-93 (-) 4,15,552 1993-94 3,99,693 - 1994-95 12,84,762 1995-96 (-) 45,948 (-) 6,80,664 1996-97 4,71,884 (-) 20,000 1997-98 10,30,353 (-) 49,060 1998-99 (-) 6,70,539 1999-2000 2,31,001 Total 40,93,618 (-) 1,15,008 (-) 47,47,381 ------------------------------------------------------------ 4. While coming to the total of undisclosed income of the block period, the AO noted that in asst. yr. 1989-90, the assessed undisclosed loss is Rs. 24,82,540, but the amount of loss is not to be carried forward under the provisions of Expln. (a) to s. 158BB(1) of the Act. Same was the fate of the assessed loss of Rs. 4,94,086 and Rs. 4,15,552 assessed in asst. yrs. 1990-91, and 1992-93. For asst. yr. 1995-96 and asst. yr. 1998-99, the AO assessed the loss of Rs. 6,80,664 and Rs. 6,70,539, respectively, but he has not taken note of these losses also in view of Expln. (a) to s. 158BB(1) of the Act. The AO has taken positive figures of the total undisclosed income as assessed by him at Rs. 40,93,618 and added ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Asstt. CIT (1998) 61 TTJ (Mumbai) 197 : (1998) 65 ITD 501 (Mumbai) in which facts were said to be identical to the facts available in the case of the assessee and the Bench after considering the legal position had concluded that losses as computed in the block assessment had to be set off against undisclosed income computed in respect of other previous years falling within the block period. The learned counsel had referred to the relevant portions of the observation of the Bench to substantiate that the issue is entirely covered by the said decision of Mumbai Bench in the case of BDA Ltd. vs. Asstt. CIT. 8. As against it, the learned senior Departmental Representative submitted that the computation of undisclosed income by the AO was justified as the benefit of carry forward and set off of loss is not permissible in view of Expln. (a) to s. 158BB(1) of the Act. The learned senior Departmental Representative submitted that benefit of carried forward and set off of loss is specifically allowed under the special provisions contained in Chapter VI of the Act subject to the conditions. The first condition is that carry forward and set off of loss cannot be allowed unless the loss has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sses determined in previous year falling within the block assessment cannot be allowed to be carried forward and set off against the undisclosed income of another previous year within the same block period nor can the losses be determined in the regular assessment being the carried forward and set off against the undisclosed income of the block period, as evident from conjoint reading of s. 80 and Expln. (a) to s. 158BB(1) as well as from sub s. (4) of s. 158BB. 10. The learned senior Departmental Representative placed reliance on the order of the recent decision in the case of Fenoplast Ltd. vs. Asstt. CIT (2002) 77 TTJ (Hyd)(TM) 806 : (2002) 82 ITD 178 (Hyd)(TM) in which the AM whose view was found favoured with the Third Member had observed at p. 194 of 82 ITD that brought forward losses and unabsorbed depreciation will be given a set off while making regular assessment but they will have to be ignored while computing the undisclosed income of the block period. The learned senior Departmental Representative pointed out that Third Member at p. 215 of 82 TTD has also taken note of the fact of the said proposition and has observed as under: "Hence, it would be difficult to hold t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed in the block assessment is to be filled in Form No. 2-B and there is no column for claiming set off of brought forward losses, which is available in the case of regular assessee, who is supposed to file return of income in Form No. 2, which requires elaborate information to be furnished in respect of claim of set off of brought forward losses. 14. The other contention of the learned senior Departmental Representative is that in case the assessee had not complied with statutory requirement in lodging its claim for carry forward and set off of brought forward losses as per law, it cannot be allowed to get benefit of its lapse in the block assessment proceedings as the same proceedings are for the benefit of Revenue and not of the assessee. The learned senior Departmental Representative placing reliance on the decision of Hon'ble Jammu & Kashmir High Court in the case of CIT vs. State Agro Development Corporation (2001) 167 CTR (J&K) 570 : (2001) 248 ITR 487 (J&K) in which it was laid down by their Lordships that the assessee, who did not file return of income under s. 139(1) cannot get benefit of carry forward and set off of the loss in reassessment proceedings, the contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not found at the time of search and assessee had also not filed returns for the assessment years prior to asst. yr. 1995-96. The AO himself had computed losses at Rs. 47,47,341 for the block period and that amount of loss is in the block period itself and cannot be ignored. The contention of the learned counsel is that Rs. 5,38,755 was the difference in between the figure of losses computed by the AO and the figure of undisclosed income arrived by him for the block period and assessee is not claiming carry forward of this amount of difference, viz., loss of Rs. 5,38,555 to subsequent years. The argument of the learned senior Departmental Representative that the assessee is claiming carry forward of losses is misplaced. 19. About the decision of Third Member in the case of Fenoplast Ltd. vs. Asstt. CIT, the learned counsel submitted that the issue involved in that case was altogether different and it was not on the point in issue while the factual position of the case of BDA Ltd. was identical to the factual position of the case and ratio laid down by that Bench of Tribunal is squarely applicable. Not only this, the learned counsel has also referred to some of the observations of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entative that previous year as defined in s. 3 of the Act means the financial year immediately preceding the assessment year is not to be taken into consideration as we are concerned with the assessment of block period. The very computation of undisclosed income of the block period is prescribed by s. 158BB and relevant portions of that section are extracted hereunder: "158BB.(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the AO and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined,- (a) to (f) xx xx xx xx xx xx Explanation.: For the purposes of determination of undisclosed income,- (a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principles, it is not possible to countenance the argument of the Revenue that the result of the computation of a particular period comprised in the block period has to be ignored, if such computation shows a loss. It would be the same thing as saying that in respect of a normal previous year consisting of a period of twelve months, the result of computation for the first period of six months would be ignored, if it shows a loss, and the income computed in respect of the rest of the six months only would be taken. Such an argument, if advanced in respect of an assessment of an assessee whose case is not covered by Chapter XIV-B, cannot be accepted, as it is a well accepted and recognized position that the computation must be made with reference to the whole period of twelve months comprised in the previous year and the tax is payable only if such computation shows a positive income. Losses incurred during the previous year cannot be ignored and this principle is inbuilt in the concept of an assessment under the IT Act. The principle is that for the purpose of charging income-tax the various sources of income of an assessee have got to be aggregated and (if) the results of each sour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... falling within the block period. The undisclosed income is to be computed in accordance with Chapter IV of the Act (ss. 14 to 59). Expln. (a) says further that for the purposes of determination of the undisclosed income, the total income or loss of each previous year shall for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of Chapter VI without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under s. 32(2). Reading sub-s. (1) in conjunction with cl. (a) of the Explanation, it is clear that while aggregating the results of the different previous years falling within the block period, the losses have also to be taken into account. It may very well happen that while determining the result of a particular previous year falling within the block period on the basis of the evidence found as a result of the search or the documents or such other materials as are available with the AO, he may find that the computation of the income as per Chapter IV (ss. 14 to 59) yields a negative result, i.e., a loss. The possibility of this position has been taken into account by cl. (a) of the Expl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Chapter XIV-B would have to be made untrammeled by what happened in the earlier regular assessments. The other reason why the brought forward losses under Chapter VI are excluded is because the block assessment is confined only to the determination of the undisclosed income of the block period, whereas losses to be carried forward to future years may have been determined m the regular assessments made prior to the date of search under the normal provisions of the Act and in the very nature of things such losses, determined and allowed to be earned forward, have no place in the context of a block a assessment framed after the search,. The two streams of assessment are kept apart and one is not projected into the other. The position is made clear beyond any doubt in sub s. (4) of s. 158BB. It says that losses brought forward from the earlier years under Chapter VI or unabsorbed depreciation under s. 32(2) will not be set off against the undisclosed income determined in the block assessment under s. XIV-B, but will be carried forward for being set off in the regular assessments. Thus, reading cl. (a) of the Explanation to sub-s. (1) in harmony with the said sub-section and sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... set off in subsequent regular assessments and shall not be set off against the undisclosed income determined in the block assessment. Therefore, the total income or total losses of each previous year shall for the purpose of aggregation be taken as the total income or total losses without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under s. 32. In other words, where in the regular assessment proceedings, set off of loss or unabsorbed depreciation has been allowed in the regular assessment proceedings, the same shall be ignored for determining the undisclosed income for the block period." 26. This clarification of the CBDT makes it abundantly clear that set off of loss or unabsorbed depreciation, which has been allowed in the regular assessment to be carried forward alone was to be ignored, but in the case like our, where the AO had himself computed losses on the basis of seized material and figure of losses is much more than to the figure of undisclosed income appearing in the block assessment period, cannot be allowed to be ignored the losses as block period for all the purposes is one unit and figures of loss and income have to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of the case and in the light of the provisions contained in Expln. (a) to sub-s. (1) and sub-s. (4) of s. 158BB of the IT Act, 1961, the unabsorbed depreciation designated as 'current depreciation' under s. 32(2) of the IT Act, 1961, is available for set off against the undisclosed income determined in a block assessment? 2. Whether on the facts and circumstances of the case and in the light of the provisions contained in Explanation to sub-s. (2) of s. 158BA of the IT Act, 1961, it is necessary that the aggregate income computed in a block assessment should be a positive income, so as to attract levy of tax under s. 113 of the IT Act, 1961, on the amount of undisclosed income determined in that block assessment? 30. A perusal of the above shall reveal, the actual controversy is not at all identical to the issue involved before us. Further, the observations of the Hon'ble Third Member at p. 221 of 82 ITD (TM) is relevant, which are as under: "A search normally results only in undisclosed incomes but there can hypothetically be cases where it can result in undisclosed losses. If there is an understatement of income or overstatement of losses in the regular returns an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the present reference, there are no losses which are computed on the basis of the search material for any year included in the block period." 33. The above observation makes the position clear and view of the decision in the case of BDA Ltd. vs. Asstt. CIT is not distinguished nor overruled and that view still holds good, which is admittedly involving the factual position, which is identical to the facts before us and this fact has not been disputed by the learned senior Departmental Representative also. In view of these discussions, we are following the decision of the Mumbai Bench in the case of BDA Ltd. vs. Asstt. CIT and result will be that computation arrived at by the AO was not in consonance with the mode of computation of undisclosed income as laid down in s. 158BB of the Act and losses computed by the AO himself on the basis of seized material are to be adjusted against the undisclosed income computed by the AO during the block period. Result is that ground raised by the assessee is allowed and the AO is directed not to ignore the figure of losses as computed but to adjust the same against the amount of undisclosed income as assessed by him. However, it is made clear ..... X X X X Extracts X X X X X X X X Extracts X X X X
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