9911796707
TMI Blog2000 (2) TMI 789X X X X Extracts X X X X X X X X Extracts X X X X ..... entries were identified as sales made to various dealers outside the books of account. Such sales totalled Rs. 14.80 crores. The diary also consisted of some cash collections, amounts sent by DDs, payments made to suppliers like Chemplast, R. K. Mills, Coal and some interest payments to parties. The director of the assessee-company, Sri Krishnakumar, was confronted with these entries and in the absence of satisfactory explanation from him, a declaration under section 132(4) was made by him admitting Rs. 1.90 crores as profit out of the above unaccounted for transactions. During the course of the search, Sri H. Kishan was confronted with the investments made by his family group, i.e., "Haridas group", in promoters quota shares and he has disclosed an amount of Rs. 19,00,000 towards unaccounted for investment in promoters quota equity in Fenoplast Ltd. Also the assessee admitted undisclosed income for the assessment year 1991-92 at Rs. 4,25,000 towards unexplained cash credits in sister concerns. Thus, the disclosure made by the assessee-company under section 132(4) is as follows : Rs. Towards profit on unaccounted for sales 1,90,00,000 Unaccounted investment in promoters equit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cordingly, the Assessing Officer determined the undisclosed income for the block period at Rs. 1,46,02,752 and tax thereon at Rs. 87,61,651. Secondly, he did not accept the contention that income for the regular assessment and assessment under section 158BC including the undisclosed income could be "nil". He rejected the assessee's submission that the current year's depreciation for each year was enough to neutralise the addition of undisclosed income, holding as under : "….. if the resultant figure after setting off the current year's income against the current year's depreciation, is negative, the same should be taken as 'loss' but not as nil as admitted and argued by the assessee. This opinion gets strength from the Supreme Court judgment in the case of Garden Silk Wvg. Factory v. CIT [1991] 189 ITR 512….." Thus, he treated the balance of the current year's depreciation available to the assessee (before the inclusion of undisclosed income) as business loss. The consequence of this treatment was the transformation of the character of unabsorbed depreciation into business loss and the addition of undisclosed income became a simple matter of overstatement of busines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance of Rs. 1,28,04,522 out of the current depreciation. The assessee has shown nil income for this year because under section 32(2) depreciation can be adjusted against business profits only to the extent of business profits available and the balance has to be considered only in the next assessment year. In this case, according to the assessee, the available business profits would be only to the extent of adjustment of depreciation of Rs. 2,93,14,847 minus Rs. 1,28,04,522. So, under section 32(2) the balance of Rs. 1.28 crores cannot be adjusted this year because income for this year is nil, meaning thereby that there was neither profit nor loss. The position after the addition of undisclosed income of Rs. 71.92 lakhs was also the same. The additional figure of undisclosed income increased the assessable income for this year to that extent. Consequently, the business profits available to adjust the current depreciation have increased and, as a matter of fact, it should have been adjusted against the balance of current year's depreciation of Rs. 1.28 crores to the extent of reducing the profit to nil and the balance of current year's depreciation is to be carried forward. Accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the unadjusted balance of depreciation cannot be deducted this year since section 32(2) specifically stipulates that the balance of unadjusted depreciation would be treated as part of the current year's depreciation of the year following next. When there is neither profit nor loss, the income would be nil. Proceeding further, he contended that the position would be the same even after the inclusion of the undisclosed income because of the fact that the admissible current depreciation is much more than the business income including the undisclosed income. When there is nil income both in the regular assessment as well as under section 158BC, there is no undisclosed income which could be taxed. The total aggregate income for the block assessment years as fixed in the assessment order inclusive of undisclosed income was the loss of Rs. 11,13,75,788 as against the assessed total loss of Rs. 12,59,78,540 for the assessment years falling within the block period. It is thus very clear that there was no positive income and unless there is positive income, there could be no assessment to tax. According to him, the position is parallel to section 143(1A) before its amendment in 1993 unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e" always includes loss also as defined in Chapter XIV-B. So long as the disclosed loss is reduced due to addition or undisclosed income, the quantum difference is a positive figure which should be brought to tax. In the case of ITO v. Lakshmi Cotton Traders (I. T. A. No. 295/Hyd/1989), Hyderabad Bench '"B", of the Tribunal has upheld the view that penalty can be levied even in cases where assessed income and returned income are loss. Loss includes depreciation in the case of block assessments, as the columns of return would show. The column "B" should depict total undisclosed income along with disclosed income all of them resulting in a loss. Column D should reflect assessed or returned loss. They cannot be depicted as "nil", as claimed by the assessee. In support of his contentions, the learned departmental representative relied on the decision of the Supreme Court in the case of Lohia Machines Ltd. v. Union of India [1985] 152 ITR 308. We have considered the rival submissions of the parties and have gone through the materials available on record as well as the decisions cited supra. At the outset, we would state that the estimate of unaccounted income from the diaries is not se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mes, consequent to the deeming provision in section 32(2), the allowance of the following previous year). This view of ours is strengthened by the decision of the Supreme Court in the case of Garden Silk Weaving Factory [1991] 189 ITR 512 and that of the Bombay High Court in the case of Ravi Industries Ltd. [1963] 49 ITR 145. However, the Assessing Officer has relied on the above cited decision of the Supreme Court, stating that depreciation loss and business loss are the same. The Assessing Officer has misread the said decision and quoted it out of context. In this connection, the observations of the Andhra Pradesh High Court in the case of V. V. TransInvestments (P.) Ltd. v. CIT [1994] 207 ITR 508, which are extracted below, are also relevant (page 539) : "……. the finding of the Special Bench that loss includes unabsorbed depreciation was contrary to the provisions of the Income-tax Act. The reliance placed by the Special Bench on the observations of the Supreme Court in Garden Silk Weaving Factory v. CIT [1991] 189 ITR 512 is misplaced." We are unable to accept the contention of the learned Departmental Representative on this point, since the requirement in Part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue that the business loss has been overstated by Rs. 15,26,105 and to that extent there is concealed income. After considering the rival submissions of the parties as well as the relevant provisions of the Act, we are of the view that the computation of concealed income under section 158BB envisages a positive figure of assessment on the basis of the search materials. Therefore, it is to be seen whether such a positive figure is shown in the assessment order. We find that the total aggregate income is a loss of Rs. 11,13,75,788. This does not satisfy the provisions of the section enabling one to compute the undisclosed income strictly in accordance with the provisions of the Act. We have also looked into the authorities wherein it has been held that for certain purposes income would include loss also. Those cases pertain to the concept of "income" which is different from "total income", which is the phrase requiring interpretation here. Further, the meaning has to be ascertained from the context in which the expression appears. As pointed out earlier, the Legislature clearly envisages an aggregation of losses computed under section 143. In such cases, it has been provided tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be adjusted against the available balance of the current year's depreciation as per the provisions of section 32(2), since the computation of income both for the purpose of aggregation as well as in the regular assessment should be by applying the provisions of Chapter IV of the Act, which contains section 32. Therefore, according to the assessee-company, the unabsorbed depreciation cannot form part of the loss or figures shown in the various columns provided in Form No. 2B return. As a result, according to the assessee-company, where the depreciation admissible for the current year exceeds the business profits of the year, the income shall be "nil" and accordingly for the assessment years 1994-95 and 1995-96, the income under section 158BB as well as the income as per regular assessments would be "nil". The assessee-company reinforces the principle of "current depreciation" within the meaning of section 32(2) by distinguishing unabsorbed depreciation far away from unabsorbed business loss, relying on the decision of the High Court of Andhra Pradesh in V. V. Trans-Investments (P.) Ltd. v. CIT [1994] 207 ITR 508. The assessee-company has also pointed out that the Assessing Officer h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apter IV without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32." Another exception is given as sub-section (4) of section 158BB. It is also reproduced below : "(4) For the purpose of assessment under this chapter, losses brought forward from the previous year under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32 shall not be set off against the undisclosed income determined in the block assessment under this Chapter, but may be carried forward for being set off in the regular assessments." The two exceptions noticed above, do not allow the adjustment of any depreciation under section 32(2). Section 32(2) is excluded from the ambit of Chapter XIV-B not only for computing the undisclosed income for each previous year included in the block period, but also for the aggregation of the undisclosed income (Explanation (a)) and further also for the assessment and levy of undisclosed income and tax (sub-section (4)). There is no application of section 32(2) for the assessment of undisclosed income. The right of set off of depreciation under section 32(2) is available to the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osed income. In columns (B) and (D) therein, what is provided is "losses" without any distinction made for unabsorbed depreciation. The "current depreciation" pointed out by the assessee-company is nothing but unabsorbed depreciation in specie. "Losses", in the light of the above mentioned Supreme Court decisions include unabsorbed depreciation also. For the reasons stated in paras. 7, 8 and 9 above (pages 43 to 45), it is not possible to agree to the view that current depreciation could be adjusted under section 32(2) against the undisclosed income, so as to make the undisclosed income "nil". Therefore, the first ground of the assessee-company is liable to be rejected. The second ground urged by the assessee-company is that for the assessment years 1991-92, 1996-97 and 1997-98 have resulted in business losses even after the inclusion of the undisclosed income and as there is no "positive income" in the block period, there cannot be an assessment of undisclosed income and levy of tax thereon. The undisclosed income determined by the Assessing Officer is Rs. 1,46,02,752. The aggregate loss of the assessee-company for the block period before inclusion of undisclosed income is Rs. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) of section 158B and Explanation (b) to section 158BA(2) read together, do not provide for such a merger. Undisclosed income stands on its own legs provided by the statute. Undisclosed income when aggregated to the income assessed in the regular assessments, the ultimate income of the assessee may increase or the accumulated loss may reduce. This is an accounting concept. But this concept is not applicable to the case of taxation of undisclosed income as it cannot be merged with "disclosed income" ; the income or loss considered in the regular assessments. The basis of the assessee's contention of positive income is the integration of "undisclosed income" with "disclosed income", which is not permitted in the Scheme of Chapter XIV-B. This position is clear from the computation format of undisclosed income provided in Part II of Form No. 2B return. Column B and Column D therein relate to case of losses. Column B is for losses including undisclosed income and Column D is for losses returned/ assessed. For the computation of undisclosed income, Column D is always bigger than Column B, whereby the formula (D)-(B) invariably brings out a positive figure of undisclosed income. As righ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refer the matter to the President, Income-tax Appellate Tribunal, under section 255(4) of the Incometax Act, 1961, for nominating a Third Member to resolve the following points of difference :- "(1) Whether, on the facts and circumstances of the case, the Assessing Officer is correct in treating the current year's unabsorbed depreciation as 'loss' for the purpose of computation of undisclosed income under section 158BB of the Income-tax Act, 1961 ? (2) Whether block assessment can be framed where aggregated total income (including undisclosed income) determined under section 158BC for each assessment year and assessed/returned income is loss and whether tax under section 113 can be charged on the difference between the loss determined under section 158BC for each assessment year and loss assessed for each year under section 143(3) or returned by the assessee where assessment is not completed ? (3) Whether unabsorbed depreciation which cannot be absorbed for want of profit while framing the regular assessment under section 143(3) for the assessment years 1991-92 and 1995-96, can be considered and allowed deduction out of the income for the relevant years, i.e., 1991-92 and 1995-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 section 113 of the Income-tax Act, 1961, on the amount of undisclosed income determined in that block assessment." The assessee-company is engaged in the business of manufacturing PVC leather cloth and PVC film. A search was conducted at the business premises of the assessee-company and the residences of its directors and company executive on October 8, 1996, and in the course of the search, certain incriminating documents, mainly by way of a diary, was seized from the premises of Shri H. Raviraj, company executive and nephew of the chairman and managing director of the assessee-company. In the course of the search itself, the assessee-company was confronted with the contents of the diary and the assessee made a disclosure under section 132(4) of Rs. 2,13,25,000, as per the following details : Rs. Towards profit on unaccounted for sales 1,90,00,000 Unaccounted investment in promoter's equity of Haridas group 19,00,000 Unexplained cash credits 4,25,000 Total 2,13,25,000 In the block return filed by the assessee-company in respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,54,02,344 6,97,93,055 12,51,95,399 Difference 76,17,864 The above figure may be verified in a different manner as follows: Assessment year 1991-92 52,56,436 48,31,436 = 4,25,000 (Reduction in business loss) Assessment year 1995-96 1,36,65,373 64,72,509 = 71,92,864 (Reduction in unabsorbed depreciation) Total 76,17,864 It may be observed that the assessee-company has not disclosed the above undisclosed income of Rs. 76,17,864, notwithstanding the fact that there is a reduction in business loss and unabsorbed depreciation to the tune of Rs. 76,17,864. On the other hand, it adjusted the said undisclosed income of Rs. 76,17,864 against business loss and depreciation of each year and worked out the undisclosed income at a nil figure. Before me, the learned Departmental Representative claimed that the assessee-company should have returned the undisclosed income at Rs. 76,17,864 even on the basis of the figures adopted by it in the block return. It is claimed that as per the mode of computation of the undisclosed income required to be done in Part II and Part III in Form No. 2B, the assessee should have reflected the undisclosed income of Rs. 76,17,864 as per the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he aggregate of the losses assessed/returned in the regular returns, as there is a net reduction in the loss disclosed consequent to the search action, such reduction in the loss has to be treated as the undisclosed income of the block period and should be brought to tax under the provisions of section 113 of the Act. The learned Accountant Member has upheld this stand. This, in short, is the dispute raised in this reference even though it has further ramifications which shall be discussed hereinafter. The claim of the assessee before the Assessing Officer has been that when the net result of the computation of income for any assessment year resulted in unabsorbed depreciation for the year and there is no business loss of the year, the total income of the year has to be determined at a nil figure and the unabsorbed depreciation has to be carried forward to subsequent years. By this method, the assessee set off the unabsorbed depreciation of each year against the undisclosed income of that year and arrived at nil income for that year and thus worked out the aggregate of the undisclosed income for all the years at a nil figure. The stand of the Assessing Officer has been that, when ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions. Therefore, in case of inadequate business profits, the current year's depreciation is admissible only to the extent of availability of business profits and the result would be the business profit would be reduced to 'nil'. Accordingly, there would be neither profit (because the available current year's depreciation has been adjusted against the total current year's business profits) nor loss (because the balance of the current year's depreciation ceases to be the allowance of the current year and becomes, consequent to the deeming provision in section 32(2), the allowance of the following previous year). This view of ours is strengthened by the decision of the Supreme Court in the case of Garden Silk Wvg. Factory [1991] 189 ITR 512 and that of the Bombay High Court in the case of CIT v. Ravi Industries Ltd. [1963] 49 ITR 145. However, the Assessing Officer has relied on the above cited decision of the Supreme Court, stating that depreciation loss and business loss are the same. The Assessing Officer has misread the said decision and quoted it out of context. In this connection, the observations of the Andhra Pradesh High Court in the case of V. V. TransInvestments (P.) Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f assessment on the basis of the search materials. Therefore, it is to be seen whether such a positive figure is shown in the assessment order. We find that the total aggregate income is a loss of Rs. 11,13,75,788. This does not satisfy the provisions of the section enabling one to compute the undisclosed income strictly in accordance with the provisions of the Act. We have also looked into the authorities wherein it has been held that for certain purposes income would include loss also. Those cases pertain to the concept of 'income' which is different from 'total income', which is the phrase requiring interpretation here. Further, the meaning has to be ascertained from the context in which the expression appears. As pointed out earlier, the Legislature clearly envisages an aggregation of losses computed under section 143. In such cases, it has been provided that undisclosed income would be the total income under section 158BB as 'increased' by the losses under section 143. Hence, it would be difficult to hold that envisaging losses under section 158BB was a mere omission. The intention seems to be only to levy taxes on those who have positive income which was unearthed by search. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... B, whereby the formula (D)-(B) invariably brings out a positive figure of undisclosed income. As rightly pointed out by the learned Departmental Representative, the aggregate of the returned/assessed loss of the assessee-company has been reduced to a lesser amount only because of the intervention of a positive undisclosed income. Wherever an amount of undisclosed income is determined under the provisions of section 158BB, that undisclosed income shall always be a positive figure. It may increase the aggregate income of the assessee or reduce the aggregate loss of the assessee. That part of final result is not relevant for the recognition of undisclosed income and the levy of tax thereon. The moment undisclosed income is determined in a block assessment, it attracts the levy of tax prescribed under section 113 . . ." The learned Accountant Member also referred to Explanation in sub-section (2) of section 158BA, which has been inserted retrospectively, to make clear the insulation of the undisclosed income from income assessed in the regular assessments. For the above reasons, the learned Accountant Member held that as the aggregate losses (inclusive of unabsorbed depreciation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reciation is not to be set off, the Legislature would specifically have mentioned that such a set off of current depreciation is not permissible. On the other hand, the provision specifically refers to section 32(2) but omits any reference to section 32(1). The provision further stipulates that the undisclosed income has to be computed in accordance with the provisions of Chapter IV, but the prohibition is only against the set off of unabsorbed depreciation under section 32(2) and not set off of current depreciation under section 32(1). It is also claimed that even sub-section (4) of section 158BB, which refers to the block assessment as a whole, also talks of only set off of unabsorbed depreciation under section 32(2) and it in no way refers to the deduction of depreciation under section 32(1). In this context, the learned counsel for the assessee has also relied upon the decision of the apex court in the case of Garden Silk Wvg. Factory v. CIT [1991] 189 ITR 512 and mentioned that depreciation is a notional expenditure and should be set off against all income, and that in this case the apex court held that in the case of the depreciation allowable in the hands of the registered f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the assessee cannot be taxed, as held by the learned Judicial Member, unless there is aggregate income for being taxed. Finally, it is also mentioned in the written submissions of the assessee that if the method adopted by the Assessing Officer to bring the reduction in the loss as undisclosed income consequent to the completion of the block assessment for the block period is approved, it would in some cases result in an anomalous situation inasmuch as an assessee who had filed regular returns and was assessed on losses in those assessments would be assessed on higher undisclosed income than somebody who did not file such loss returns and consequently was not assessed at all on any losses. In the former case, the undisclosed income would be higher because of the earlier losses and in the latter case there is no such increase, as no losses were assessed in the regular assessments. The learned Departmental Representative, on the other hand, relied mainly on the format of the prescribed block return in Form No. 2B, and particularly Parts II and III thereof. He invited our attention to the columns of Part II of Form No. 2B and has also filled the said Part II with the figures c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 1,46,02,752 as against the undisclosed income returned by the assessee in the block return of Rs. 76,17,864. As per the computation given by the learned Departmental Representative before me, the yearwise details of the undisclosed income are as follows : Assessment year Undisclosed income (Rs.) 1991-92 4,25,000 1994-95 20,17,816 1995-96 1,10,56,831 1996-97 8,18,585 1997-98 2,84,520 Total 1,46,02,752 The correctness of the above figures is not disputed before me or even before the two Members who heard this appeal earlier. The above figures can be tallied as follows :- Assessment year 1991-92 : Rs. 79,59,823 (D) Rs. 75,34,823 (B) Rs. 4,25,000 Assessment year 1994-95 : Rs. 3,28,71,054 (D) Rs. 3,08,53,238 (B) Rs. 20,17,816 Assessment year 1995-96 : Rs. 1,28,04,522 (D) Rs. 17,47,691 (B) Rs. 1,10,56,831 Assessment year 1996-97 : Rs. 6,40,01,511 (D) Rs. 6,31,82,926 (B) Rs. 8,18,585 Assessment year 1997-98 : Rs. 2,84,520 (A) Rs…………...(C) Rs. 2,84,520 Total Rs. 1,46,02,752 The main plank of the argument of the learned Departmental Representative has been that Part II of Form No. 2B, while it provides for year wise loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ohibits such set off of the unabsorbed depreciation of the earlier years, the learned Departmental Representative mentioned that the mode of computation adopted by the Assessing Officer does allow such set off of current depreciation in the computation of year wise figures taken into account in columns A and B of the above statement. It is also refuted that the prescribed return form for block assessment, i.e., Form No. 2B, is not in conformity with the statute. It is claimed that the return form is very much in consonance with the provisions of Chapter XIV-B of the Income-tax Act. The learned Departmental Representative also pleaded that in terms of the scheme of the Income-tax Act, even penalty under section 271(1)(c) can be levied for overstatement of loss, as held by the Kerala High Court in the case of CIT v. Rowther Brothers [1979] 119 ITR 353 and also by the Hyderabad Bench of the Tribunal in the case of ITO v. Lakshmi Cotton Traders, Proddatur (ITA No. 295/ Hyd of 1989), referred to by the learned Judicial Member in page 9 of his order, and as such there is no reason to hold that overstatement of loss in the regular returns or reduction of loss consequent to block assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The only dispute is whether in view of the fact that there is an aggregate loss of Rs. 11,67,05,185 for the block period as computed by the Assessing Officer (without taking into consideration the aggregate income for the same period of Rs. 53,29,397) as evident from the table furnished before me by the learned Departmental Representative on the basis of the computed figures in the block assessment order and extracted by me hereinabove, the undisclosed income can be computed at a figure of Rs. 1,46,02,752 as done by the Assessing Officer. To understand the issue raised in this reference, it is worthwhile to look at some of the relevant provisions of Chapter XIV-B of the Income-tax Act. The purpose of this Chapter is to lay down a special procedure for assessment of search cases with a view to combat tax evasion and also to expedite and simplify assessments in search cases. The purpose of the Chapter was explained by the Finance Minister in his Budget speech for 1995-96 in the following words (see [1995] 212 ITR (St.) 69, 87) : "The searches conducted by the Income-tax Department are an important means of unearthing black money. However, undisclosed incomes have to be related t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect from July 1, 1995, reads as follows : "Explanation.-For the removal of doubts, it is hereby declared that- (a) the assessment made under this Chapter shall be in addition to the regular assessment in respect of each previous year included in the block period ; (b) the total undisclosed income relating to the block period shall not include the income assessed in any regular assessment as income of such block period ; (c) the income assessed in this Chapter shall not be included in the regular assessment of any previous year included in the block period." Section 158B which defines "block period" and "undisclosed income" reads as follows : "(a) 'block period' means the previous years relevant to ten assessment years preceding the previous year in which the search was conducted under section 132 or any requisition was made under section 132A, and includes, in the previous year in which such search was conducted or requisition made, the period up to the date of the commencement of such search or, as the case may be, the date of such requisition ; (b) 'undisclosed income' includes any money, bullion, jewellery or other valuable article or thing or any income based on any entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive figure. Under the provisions of section 158BB, the first aggregate to be computed is the total income of the previous years falling within the block period which includes returned/assessed incomes as per regular returns and regular assessments. The second aggregate to be worked out is the aggregate of the total incomes/losses of the previous years determined as per clauses (a) to (f) of section 158BB(1). In other words, this is the aggregate of the returned/ assessed incomes/losses as per regular returns and regular assessments. The difference between the first aggregate and the second aggregate has to be worked out and that difference is described in section 158B(b) as the "undisclosed income" to be taxed under the provisions of section 113 of the Act at the special rates prescribed. In other words, while section 158B(b) defines "undisclosed income", the mode of quantification of the undisclosed income is laid down in section 158BB(1). The essence of the mode of quantification of the undisclosed income is by working out the difference between the two aggregates mentioned hereinabove. When the aggregate of the total incomes of the relevant previous years as per the block retur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontention because, as already mentioned, the total income can be a negative figure, and as pleaded by the learned Departmental Representative, the Act does not rule out the levy of penalty for concealment even for understatement of loss in a return. The decision of the Kerala High Court in the case of CIT v. Rowther Brothers [1979] 119 ITR 353 is an authority for this proposition. At any rate, the wordings in section 158BB are that the aggregate of the total incomes of the previous years computed as per the block return has to be reduced or increased, as the case may be, by the aggregate of the total incomes of the previous years determined as per clauses (a) to (f) of section 158BB(1). The decrease is in case the aggregate of the incomes returned/assessed as per regular returns and regular assessments is a positive figure and the increase happens when the said aggregate is a loss or a negative figure. The words "as increased by the aggregate of the losses of such previous years" figuring in section 158BB(1) invariably result in this mode of quantification. The statutorily stipulated mode of quantification cannot be ignored. In the undated written submissions filed by learned couns ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is the undisclosed income determined by the Assessing Officer. In other words, the illustration given by learned counsel for the assessee only proves the confusion arising from transcribing the language of the statute into mathematical symbols. I see no merit in the above contention. The correct way of working out the undisclosed income in the present case is as follows : Aggregate total income as per the block return (-) Rs. 11,13,75,788 Add : Aggregate total income as returned/assessed Rs. 12,59,78,540 Difference or undisclosed income Rs. 1,46,02,752 It is also made out in the written submissions that on the basis of the method adopted by the Assessing Officer, an assessee who had not filed any returns for some of the years in the block period and so was not assessed on any negative figures stands to gain compared to somebody who complied with the statutory provisions, filed the returns and was assessed on losses. He gave a hypothetical illustration in annexure III of his written submissions, which reads as follows : "Assessment year Total income including undisclosed income/loss Income/loss returned/ assessed A B C D Total income (+) Rs. Total loss (-)Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sclosed 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 and regular assessments as per the mode of computation stipulated in section 158BB(1), there is an undisclosed income which is always a positive figure. If, on the other hand, the completion of the block assessment results in not so usual but not an impossible situation that the assessee had only understated his losses or overstated his income, there can be no undisclosed income as per the provisions of section 158BB. There is no logical absurdity in the mode of computation prescribed in section 158BB(1). The Assessing Officer has only followed the mode of computation prescribed in section 158BB(1) and so there is no reason not to tax the income in question of Rs. 1,46,02,752 under the provisions of section 113. The main plank of the order of the learned Judicial Member and also the argument of learned counsel before me is that clause (a) of Explanation to section 158BB(1) prohibits the set off of brought forward losses from earlier years and of unabsorbed depreciation under section 32(2) but ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... restricted to the unabsorbed depreciation of the earlier years. Actually, that is not the issue arising in this reference. The fact of the matter is that in the mode of computation adopted by the Assessing Officer which is in consonance with the provisions of section 158BB(1), the current depreciation which is not absorbed in the regular return and so is carried forward in such regular assessment is set off against the undisclosed income in the respective years in the block period. Because of the undisclosed incomes which have been determined in the block assessment, the total income in column A of Part II of the return in Form No. 2B, as filled up by the learned Departmental Representative, reproduced hereinabove, is determined at a higher figure of Rs. 53,29,397 than the total income in column C of Rs. 50,44,877, and for the same reason, the total loss in column B at Rs. 11,67,05,185 is determined at a lower figure than the total loss in column D of Rs. 13,10,23,417. In other words, both the incomes and the expenses/allowances computed in the regular assessments have been taken into account while determining either the total income or total loss of the previous years in the block ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54 dated February 23, 1998. It is this loss of Rs. 1,28,04,522 which has been set off against the undisclosed income computed for the assessment year 1995-96 in the block assessment at Rs. 1,10,56,831 and the balance of Rs. 17,47,691 is reflected in column B of the table as per Part II of the return in Form No. 2B furnished by the learned Departmental Representative, which I have extracted hereinabove. In other words, the loss of Rs, 17,47,691 reflected in column B of the table furnished by the learned Departmental Representative as the assessed loss for the assessment year 1995-96 in the block return is arrived at after set off of the unabsorbed current depreciation of Rs. 1,28,04,522 as per the regular assessment order. The same is the position for the other assessment years. So the entire controversy as to whether the current depreciation, which remains unabsorbed in the regular assessment order, should be allowed as a deduction from the undisclosed income computed in a particular year in the block assessment seems off the mark as the Assessing Officer himself has allowed such set off or deduction. I may also mention that the dispute raised by learned counsel for the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , business loss includes depreciation as the loss is worked out only after debiting depreciation to the profit and loss account. The relevant portion of the remarks of the apex court in the case of Garden Silk Weaving Factory v. CIT [1991] 189 ITR 512, as per the head note, reads as follows : "Unabsorbed depreciation is indeed a part of the 'loss'. This is so because, in the first place, depreciation is a normal outgoing, though in a sense notional, which has to be debited in the computation of the profits of a business on commercial principles (quite apart from statute) and it is difficult to say why, when such deduction yields a negative figure of profits, it cannot be a 'loss' as generally understood. CIT v. Jaipuria China Clay Mines P. Ltd. [1966] 59 ITR 555 (SC) relied on. There is nothing anomalous or absurd in the statute providing for a dissection of the amount of loss for purposes of carry forward and providing for a special or different treatment to unabsorbed depreciation in this regard although it is a component element of the genus described as 'loss'." In the light of the above observations of the apex court regarding depreciation being a component part of loss ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore me that the Explanation to section 158BA mentioned above are a protection to the assessee. I am of the view that they are no protection to either the assessee or the Revenue. They only clarify the procedure laid down for the quantification of the undisclosed income and in the face of this provision and the provisions of sub-section (4) of section 158BB, it is difficult to hold that the undisclosed income need not be taxed and can go simply to reduce carried forward losses and unabsorbed depreciation of various years in the regular assessments. Chapter XIV-B is a self-contained code and it appears to me that the scheme laid down in the Chapter for quantification and taxing of the undisclosed income has to be adhered to. For the above reasons, I find myself generally in agreement with the learned Accountant Member. I may also mention that Chapter XIV-B is intended as a deterrent against tax evasion and an interpretation has to be placed on the said Chapter which does not defeat the legislative purpose. If a view is taken that when the aggregate of the total income of the previous years falling within the block period is a loss, there can be no levy under section 113 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X
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