TaxTMI 
TaxTMI 
2000 (4) TMI 154
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....ious party-wise ledgers maintained. According to the Assessing Officer, the debit 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 asst. 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: -------------------------....
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....eriod under consideration, the assessee has aggregated the current year's loss with the undisclosed income admitted at Rs.52,92,864 towards undisclosed income generated out of turnover in the diary and Rs.19,00,000 admitted towards investment in promoters quota shares of 'Haridas family' for the assessment year 1995-96 and Rs.4,25,000 towards cash credits in the books of account of the sister companies in the assessment year 1991-92 and aggregated the same with the respective losses of those years on account of current year's deprecation. While deducting Column-C of Part-II of the block return, they have taken income returned as Nil for the assessment years 1991-92 and 1995-96. As a result of this, the entire undisclosed income admitted by the assessee has become Nil. However, after elaborate discussion, the Assessing Officer was of the view that while arriving at the undisclosed income by reducing returned/assessed income under sections 139, 143, 144 and 147, 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. In support ....
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.... Rs. --------------------------------------------------------------------------------- Loss assessed 1,28,04,522 Less: Net profit as estimate on the undisclosed turnover as discussed at para 10 87,60,789 Net profit as estimated on the undisclosed turnover as discussed in para 11 3,96,042 Investment in promoters' quota shares of Fenoplast as discussed in para 13 ....
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....e diary found at the premises of one of the executives. In this diary certain sales made in the course of the last three years before the said search were noted down and the department proceeded on the presumption that the figures noted therein were all undisclosed sales; but the assessee in its reply reconciled some of the transactions with the regular books. In regard to some of the transactions, it was asserted that the assessee could not prove to the satisfaction of the Assessing Officer that they were all genuine and noted in the regular books. Under these circumstances, the assessee had agreed that a sum of Rs.71,92,864 for the assessment year 1995-96 and Rs.4,25,000 for the assessment year 1991-92 could be treated as undisclosed income. The assessee, however, admitted that certain figures as undisclosed during the course of investigation following the search and in the return filed the assessee had shown 'nil' income for the purpose of the assessment under section 158BC. The assessee wanted to explain as to how he has shown 'Nil' income for the block assessment and thereby he contended that if the figure for the assessment year 1995-96 were to be considered by way of busines....
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....n of the assessee that current year's depreciation for each year was more than enough to neutralize the addition of undisclosed income in the assessment year. 5. He, however, explained that there is no dispute that the figure of Rs.1,28,04,522 is the unabsorbed depreciation as per the regular assessment for this year. But, for the purpose of block assessment, it was converted into business loss. He explained that by the addition of undisclosed income of Rs.1.10 crores, the claim was reduced and therefore this was undisclosed income for the purpose of section 158BB. Before us, the learned authroised representative challenged the assessment order mainly on two grounds, viz., (1) The addition made by way of undisclosed income should be adjusted against the available balance of 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. If the income is so computed, the total income for these years before the inclusion of undisclosed income could only be nil with certain amount of u....
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....Andhra Printers Ltd. [1979] 117 ITR 555 (AP), CIT v. Man Mohan Das [1966] 59 ITR 699 (SC), Wester" India Oil Distributing Co. Ltd v. CIT [1980] 126 ITR 497 (Bom.), CIT v. Elphinstone Spg. & Wvg. Mills Co. Ltd. [1960] 40 ITR 142 (SC), Indo-Gulf Fertilizers & Chemicals Corpn. Ltd. v. Union of India [1992] 195 ITR 485 (All.), B.D.A. Ltd. v. Asstt. CIT [1998] 65 ITD 501 (Mum.), CIT v. Prithipal Singh & Co. [1990] 183 ITR 69 (P&H) and CIT v. Sri Vijayalakshmi Mineral& Trading Co. [1999] 151 CTR (AP) 166. 6. On the other hand, the learned departmental representative contended as under: It is always mentioned in the block return (D-B) to declare that undisclosed income has been detected and 'D' would always be greater than 'B'. The assessed or the returned loss, i.e. 'D', would be greater than 'B'(assessed or returned loss as reduced by undisclosed income). In view of the same, D-B would always be a positive figure and hence that itself is to be taken as undisclosed income for the purpose of taxation. It is the intention of the Legislature not to give set off adjustments and Chapter VI adjustments and also Chapter VI-A deductions, the interpretation to allow the undisclosed income dete....
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....ssee's case is that if the current year's depreciation exceeds the business income as computed, the allowance of depreciation for that year would be only equal to the business profits. A reading of sections 32(2), 72(2) and 72(3) of the Act would go to show that if the profits of the business are inadequate to give effect to the admissible depreciation, then the depreciation allowable gets split into two -- one part relating to the assessment year for which it is current depreciation and the second part, which statutorily is made to relate to the allowance and deductions of the following previous year. It, therefore, follows that the part which is deemed to be the allowance of the following previous year cannot, at the same time, represent the allowance of the current assessment year. The view that the balance of the current year's depreciation would continue to be the allowance relatable to the current assessment year, goes against the statutory provisions. 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'. Acco....
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....t of undisclosed income. For the assessment year 1995-96, the carryforward is only Rs.17,47,691 as against the original figure of Rs.1.28 crores. Thus, the assessee reaps the consequence of concealment of income. But, the consequence of concealment is affecting only subsequent assessment years. We, therefore, hold that the amounts taxed for the assessment years 1994-95 and 1995-96 cannot form part of the block assessment. They stand deleted. 10. Now, we have to consider the following amounts:-- --------------------------------------------------------------------------------- Assessment year 1991-92 Rs. 4,25,000 Assessment year 1996-97 Rs. 8,18,585 Assessment year 1997-98 Rs. 2,84,520 &nb....
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..... 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. If the aggregate under section 158BB is a loss, prima facie, a loss cannot attract tax. That may be the reason why the Legislature left out of the purview of section 158BB cases like that of the assessee where the aggregation results in a loss. 13. Under these circumstances, we hold that the levy of tax under section 113 is not valid. For the assessment years 1994-95 and 1995-96, the levy is invalid for the additional reason that the income under section 143 as well as the income computed under section 158BB are the same; both are 'Nil'. Therefore, there is no question of reducing the income arrived at after the inclusion of undisclosed income by the income assessed under section 143. When both are 'nil', the ....
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....e Hon'ble High Court of Andhra Pradesh in V.V. Trans-Investments (P.) Ltd.'s case. The assessee-company has also pointed out that the Assessing Officer has misread the ratio in the decision of Hon'ble Supreme Court in Garden Silk Wvg. Factory's case. 4. The second ground urged by the assessee-company is that undisclosed income would attract the levy of tax under section 113 only if there is a positive income. That if the aggregate under section 158BB is a loss, there cannot be a levy of tax. That the assessments for the assessment years 1991-92, 1996-97 and 1997-98 have resulted in business losses. There is no positive income at all for these three assessment years even after inclusion of undisclosed income pertaining to those years. That, therefore, on the basis of positive income concept, there cannot be any undisclosed income susceptible to section 113 tax. 5. Under the Income-tax Act, depreciation is allowed as a deduction in computing the income either under section 32(1) or section 32(2). Where the profits of a particular previous year is not sufficient to absorb the depreciation of that previous year, under section 32(1), the balance of the depreciation not absorbed is....
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.... 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 assessee only in regular assessments. Though the brought forward losses and unabsorbed depreciation will be given a set off while making regular assessments, they will have to be ignored while computing the undisclosed income of the block period. Therefore, the argument of the assessee-company to adjust the 'current depreciation' under section 32(2) against the undisclosed income is not sustainable in law. 8. As the statutory provisions in respect of, the role of section 32(2) in search assessment proceedings are clear in Chapter XIV-B of the Act, the contention of the assessee-company that unabsorbed depreciation is different from loss becomes only incidental. In Garden Silk Wvg. Factory's case, the Hon'ble Supreme Court has held that even though special sets of rules are provided for the carry forward and set off of unabsorbed depreciation and business loss, the genus of the depreciation and loss is the same. The above decision has been referred to and considered by the Apex Court in its recent judgment in V.V. TransInvestme....
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....e assessee-company for the block period before inclusion of undisclosed income is Rs.12,59,78,540. After the block assessment, the aggregate loss has been reduced to Rs.1,13,75,788. According to the assessee-company, the undisclosed income determined in its case has only reduced the ultimate loss and has not resulted in a positive income, which should be there for the purpose of levying tax. 12. Chapter XIV-B contains special procedure for assessment of undisclosed income in search cases. Section 158B(b) defines 'undisclosed income'. According to the said definition, undisclosed income is that income which has not been or would not have been disclosed by the assessee for the purposes of Income-tax Act. The subject of undisclosed income has to be considered separately from income or loss considered in the regular assessments. Therefore, undisclosed income is sufficiently insulated from the income or loss considered in the regular assessments. This insulation is explicitly provided by Explanation given under sub-section (2)of section 158BA. For the sake of convenience, the Explanation is reproduced below:-- Explanation.--For the removal of doubts it is hereby declared that-- ....
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.... 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. 14. 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 of undisclosed income is determined in a block assessment, it attracts the levy of tax prescribed under section 113. Therefore, the second ground also is liable to be rejected. 15. Accordingly, the contentions of the assessee-company fail. The Assessing Officer is right in law in levying the tax on the undisclosed income determined in the impugned block assessment. The assessment is accordingly confirmed. 16. In the result, the appeal is dismissed. REFERENCE TO THE HON'BLE PRESI....
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....e facts and in the circumstances of the case and in the light of the provisions contained in Explanation to sub-section (2) of section 158BA of the income-tax 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 section 113 of the Income-tax Act, 1961, on the amount of undisclosed income determined in that block assessment." THIRD MEMBER ORDER Per Shri M.V.R. Prasad, Accountant Member -- As there was a difference of opinion between the learned Vice President and the learned Accountant Member, the Hon'ble President of the Income Tax Appellate Tribunal referred the matter to me under the provisions of section 255(4) of the Income-tax Act as Third Member. Apparently, there was no agreement between the two learned Members even on the points of difference. 2. The questions framed by the learned Vice President (JM) read as follows:-- "(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 I.T. Act, 1961? ....
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....losure under section 132(4) of Rs.2,13,25,000, as per the following details:-- --------------------------------------------------------------------------------- Towards profit on unaccounted for sales Rs.1,90,00,000 Unaccounted investment in promoter's equity of Haridas group Rs. 19,00,000 Unexplained cash credits Rs. 4,25,000 ------------------ Total &nb....
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....sp; Rs. 76,17,864 ---------------- --------------------------------------------------------------------------------- The assessee-company, however, set off the above mentioned undisclosed income against the business loss/unabsorbed depreciation of each year and accordingly worked out the undisclosed income at a Nil figure and thus filed the block return showing the undisclosed income only at a Nil figure. The year-wise details furnished by the assessee-company in the block return read as follows:-- --------------------------------------------------------------------------------- Previous Asst. Total Income including undisclosed Income Year Year -------------------------------....
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.... Nil 1,02,58,573 16,49,855 7th 1993-94 Nil - - 8th 1994-95 Nil - 3,26,35,713 9th 1995-96 Nil - 64,72,509 10th 1996-97 Nil 4,03,12,335 2,43,53,512 11th &nb....
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....; E F ------------------------------------------------------------------------------- 13,58,400 - - 1,76,620 - - Nil - 19,78,079 &nb....
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....sp; 25,94,956 5,58,27,344 7,69,85,919 ------------- ---------------- ---------------- Total Undisclosed Income for the Block period = Nil --------------------------------------------------------------------------------- It may be observed from the above statement that the assessee-company has shown the undisclosed income at Nil even though there are variations between the figures shown in Columns E and F on the one hand and Band C on the other hand in the table. Columns E and F relate to business loss and depreciation as per the regular returns and as per the assessment orders, whereas columns B and C relate to business loss and depreciation after taking into account the undisclosed incomes. The undisclosed income of Rs.76,17,864 mentioned hereinabove is reflected in the above table as follows:-- ---------------------------------------------------------------....
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....bsp; ---------------- The above figure may be verified in a different manner as follows:-- Assessment year 1991-92 Rs. 52, 56,436- Rs. 48, 31,436 = Rs. 4, 25,000 (Reduction in business loss) Assessment year 1995-96 Rs. 1,36,65,373- Rs. 64,72,509 = Rs. 71,92,864 (Reduction in unabsorbed  ....
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....sp; ---------------------------------------- logically) Total Losses Income ------------------------- Source Amount &n....
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....nbsp; 64,72,509 10th 1996-97 6,46,65,847 11th(latest) 1997-98 --------------- ---------------- Total (A) 25,94,956 (B)12,51,95,399 &nb....
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.... on the date of search/ requisition ------------------------------------------------------- Total Losses Income ----------------------------------------- Source Amount (Rs.) (Rs.) ....
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....p; (C) 25,94,956 (D) 13,28,13,263 ----------------- ----------------- --------------------------------------------------------------------------------- 6. I have referred to the above table given by the learned DR at this stage only to bring out the difference between the modes of working out the undisclosed income adopted by the assessee and that held by the Department to be the correct method. 7. The Assessing Officer, however, made certain additions to the undisclosed income and computed it at Rs.1,46,02,756 as against the admitted figure of Rs.76,17,864 adopted by the assessee. There is no dispute between the two learned Members about the computation of the undisclosed income of Rs.1,46,02,756. The only dispute is how to compute the undisclosed income for taxing it under the provisions of section 113 of the Income-tax Act when the business loss an....
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....nus of business loss even though the two are treated differently for the purpose of carry forward and set-off in subsequent years. The learned JM did not agree with the stand of the Assessing Officer. He mentioned in para 2 at page 4 of his order that the Assessing Officer treated the unabsorbed depreciation of the year as business loss and the consequence of this treatment is the transformation of the character of unabsorbed depreciation into business loss and "the addition of undisclosed income became a simple matter of overstatement of business losses to the extent of undisclosed income". He decided the issue, in para 8 at pages 10 and 11 of his order, in favour of the assessee and his remarks are as follows:-- "8. The main point for consideration is whether the assessee's computation of income at 'Nil' for the purpose of regular assessment as well as under section 158BB is correct. The assessee's case is that if the current year's depreciation exceeds the business income as computed, the allowance of depreciation for that year would be only equal to the business profits. A reading of sections 32(2), 72(2) and 72(3) of the Act would go to show that if the profits of the bu....
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.... the assessee's contention that unabsorbed depreciation cannot form part of the figures shown in the various columns. We, therefore, accept the contention that the computation of income at 'Nil' in those years where the depreciation admissible for the current year exceeds the business profits of the year. Therefore, for the assessment years 1994-95 and 1995-96 the income under section 158BB as well as income as per regular assessments would be 'Nil'." The learned Judicial Member also explained that the above view taken by him need not necessarily result in escapement of undisclosed income from being taxed inasmuch as the carried forward depreciation to the subsequent years would get reduced and the consequences of concealment is felt in subsequent assessment years. So for the assessment years 1994-95 and 1995-96, the learned JM went by the criterion of section 32(2) of the Act prohibiting the set-off of only unabsorbed depreciation of earlier years against undisclosed income and it did not raise any bar against the set-off of unabsorbed depreciation of the current year against the undisclosed income. For the assessment years 1991-92, 1996-97 and 1997-98, the learned JM observed ....
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....ase of V.V. Trans-Investments (P.) Ltd. He also relied upon clause (a) of Explanation to section 158BB and held that in view of these provisions, the brought forward losses and unabsorbed depreciation will be given set-off only while making regular assessments and they have to be ignored while computing the undisclosed income of the block period. He accordingly rejected the plea of the assessee-company for the adjustment of the current depreciation under section 32(2) against the undisclosed income of the concerned assessment year. He also observed that in terms of the columns prescribed in Form 2B of the block return in Part-II and Part-III thereof, a reduction in loss has to be categorised as undisclosed income. His comments in this regard are in paras 13 and 14 and page 21 of his order, and they are as follows:-- "13. 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 ....
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....) 78. He confirmed that there was no dispute about the computation of the undisclosed income at Rs.1,46,02,756. He, however, claimed that Part-II of the block return (Form 2B) is not in consonance with the Act inasmuch as it contemplates a situation where the greater loss should be reduced by the lower loss and the balance is taxed. It is claimed that this is not the intention of the Legislature and the return form and the rules cannot override the statutory provisions. In this context, reliance is placed upon the ratio of the decision of the Tribunal in the case of Ginners & Pressers Ltd. v. Dy. CIT [1993] 46 ITD 185 (Bom.) (SMC) wherein interpreting the provisions of section 272A(2)(c) it was held that the time limit for furnishing annual returns prescribed under rule 37 of the Income-tax Rules was in excess of the power of rule-making authority and, therefore, it has to be ignored. In other words, it is claimed that the computation of the undisclosed income filed by the assessee in the block return is in consonance with law, though it may not be in consonance with the format of the block return in Form 2B. 12. The next limb of the contention of the learned counsel for the ass....
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.... that year has to be allowed in the light of the ratio of the decision of the Apex Court in the case of Garden Silk Wvg. Factory. Referring to the provisions of the Explanation to section 158BA inserted with retrospective effect from 1-7-1995 by the Finance (No. 2) Act, 1998, it is claimed that this is only a protection to the assessee inasmuch as it prohibits the inclusion of the assessed income as per the regular returns in the undisclosed income worked out on the basis of the block return and vice versa, and this Explanation cannot deprive the assessee of the rightful claim in the form of deduction for depreciation available to it under Chapter IV as per the provisions of which Chapter the undisclosed income has to be computed under the provisions of clause (a) of Explanation to section 158BB. In other words, it is claimed that the learned JM was correct when he held that current year's depreciation is available for being set off against the undisclosed income and while granting such deduction, the provisions of section 32(2) do not come into play and only the provisions of section 32(1) are involved. It is also claimed that as in the present case the depreciation can be absorbe....
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....sp; Year computed under section 158BB -------------------------------------------- (chrono- Total Losses logically) Income -------------------------------- &....
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....bsp; ------------------------------------------------------------------------------- 6th 92-93 1,19,08,428 ------------------------------------------------------------------------------- 7th 93-94 24,49,921 ------------------------------------------------------------------------------- 8th 94-95 (x) &n....
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....bsp; 11, 67, 05,185 (A) (B) ------------------------------------------------------------------------------- Total undisclosed income for the block period = [(A) - (C)] + 2, 84,520 + to be cont... ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- cont... Returned/Assess....
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....-------------- 5th 79,59,823 ------------------------------------------------------------------------------- 6th 1,19,08,428 ------------------------------------------------------------------------------- 7th 24,49,921 ------------------------------------------------------------------------------- 8th ....
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....wise details of the undisclosed income are as follows:-- --------------------------------------------------------------------------------- Assessment year Undisclosed income --------------------------------------------------------------------------------- 1991-92 Rs. 4,25,000 1994-95 Rs. 20,17,816 1995-96 Rs. 1,10,56,831 ....
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....----- 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 -------------------------------- ----------....
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....nformation as is available with the Assessing Officer and the aggregate of the total income of all the previous years is also to be worked out. From such aggregate of the total income of the previous years falling in the block period, the aggregate of the total income of the same previous years on the basis of the assessed/returned incomes has to be reduced as mentioned in clauses (a) to (f) of section 158BB. It is pleaded that by this method, the reduction in the aggregate loss has also to be considered as undisclosed income along with any enhancement in positive incomes. Adverting to the contention of the learned counsel for the assessee that clause (a) of Explanation to section 158BB does not prohibit the set-off of current depreciation against the undisclosed income while it prohibits such set-off of the unabsorbed depreciation of the earlier years, the learned DR mentioned that the mode of computation adopted by the Assessing Officer does allow such set-off of current depreciation in the computation of yearwise 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....
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....he undisclosed income, there is no income taxable under section 113 of the Income-tax Act. 18. I find I have to agree with the learned Accountant Member, though I do not entirely subscribe to some of his observations. The admitted fact is that the assessee has disclosed additional income of Rs.76,17,864 in the block return filed by it. This additional income has been enhanced by the Assessing Officer to a figure of Rs.1,46,02,752. It bears repetition that there is no dispute between the two learned Members who heard the appeal on the question whether the additional income of Rs.1,46,02,752 has been correctly computed. 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 DR 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. 18(a). To understand the issue raised in this refer....
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....e orders of the two learned Members who have heard this appeal earlier, reads as follows:-- "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." Explanation to section 158BA which has been inserted by the Finance (No. 2) Act, 1998, with retrospective effect from 1-7-1995 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 i....
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....ions can be allowed only if the gross total income which is defined in section 80B(5) as total income before making any deductions under Chapter VIA is a positive income. In other words, conceptually, gross total income or total income can be a loss. Explanation 2 to section 64 mentions that for the purposes of the said section, income includes loss. So it is evident that in terms of the scheme of the Income-tax Act, total income of a particular year can be a negative figure and so the aggregate of the total incomes of all the previous years included in the block period can also be a negative 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 aggregat....
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....00,000 25,00,000 (3) (-)10,00,000 (-)15,00,000 5,00,000 (4) (-)15,00,000 (-)10,00,000 Nil ---------------------------------------------------------------------------------- In situation (1) above, the difference is between two positive figures. In situation (2) above, the difference is between a positive figure and a negative figure, and so the positive figure is increased by the negative figure, i.e., losses as per the regular returns/assessments as stipulated in section 158BB. In the third situation above, the difference is only between two negative figures, and the first negative figure is less than the second negative figure and the difference is only 5,00,000....
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....ed by the Assessing Officer would result in an absurd figure of Rs.23,73,54,328. The relevant portion of the written submissions reads as follows:-- "In the instant case, the assessee has computed the total income for each of the previous years as per the provisions of the Act. However, each of the previous years losses and depreciation were enough to neutralize the addition of undisclosed income. Thereby the total income of the respective years has remained negative. Therefore in view of the heavy losses incurred by the assessee in some of the previous years the aggregate total income of all the previous years is turned into negative. Further for deriving the undisclosed income the aggregate total income computed as per the section 158BB(1), shall be increased by the income/losses assessed or returned income/losses. The result of it in the instant case is as under: ---------------------------------------------------------------------------------- Examples : Total aggregate income including (-) Rs. 11,13,75,788.00 undisclosed income as per computation under ....
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.... 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 &nbs....
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....nbsp; Loss (-) Income (+) Loss (-) Rs. Rs. Rs. Rs. -------------------------------------------------------------------------------- 1987-88 13,58,400 -- 13,58,400 -- -------------------------------------------------------------------------------- 1988-89 1,76,620 -- 1,76,620 &nb....
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....p; 17,47,691 -- Nil -------------------------------------------------------------------------------- 1996-97 -- 6,31,82,926 -- 6,40,05,511 -------------------------------------------------------------------------------- 1997-98 2,84,520 -- Nil Nil -------------------------------------------------------------------------------- Total 53,29,397 11,67,05,185 &nb....
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....come 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. 19. The main plank of the order of the learned JM and also the argument of the 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 there is no prohibition against the set-off of current depreciation which has remained unabsorbed in the regular returns and so is carried f....
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....he 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 DR, 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 period. The unabsorbed portion of the loss which includes depreciation in the previous years included in the block period as per the block assessment or....
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....; 2,15,95,965 -------------- 1,24,48,400 ....
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....------- 4,73,34,305 Less: Depreciation as per Income- tax Act (Including Rollers of Rs.4,93,568) 2,93,14,847 Export benefits not accrued but accounted for 3,16,84,831 6,09,99,678 ....
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....al in the case of B.D.A. Ltd.'s is also off the mark as this controversy has no basis. I may, however, mention that the decision of the Tribunal in the case of B.D.A. Ltd. relates to a loss which has been computed on the basis of the search material for one of the years included in the block period and the question considered by the Tribunal was whether such a loss computed on the basis of the search material should be allowed as a set-off against the undisclosed income computed for another year in the block period on the basis of the search material. The said decision of the Tribunal deals with altogether a different situation than the one arising in the present reference. 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. In other words, the loss and depreciation of each year are taken into account even in the block assessment order just as they are taken into account in the regular assessment order. It is only the carry forward of such business loss or depreciation that have not been allowed and this is in consonance with the provisions of subsection (4) of section 158BB. 20. The next....
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.... the variance between the statute and the return form. On the other hand, I find that the format used in Form No. 2B is in consonance with the language of section 158BB(1) which talks of the difference between two aggregates as indicated hereinabove. The two aggregates, as already mentioned, can either be positive or negative figures, and that is how the format speaks of the difference between columns A-C on the one hand and D-B on the other. If A-C is neutral, D-B is only a difference between two aggregate losses and the quantification of such a difference between two aggregate losses is warranted by the expression in section 158BB(1) "as increased by the losses". 22. I also find merit in the contention of the learned DR that in terms of the formula for the quantification of the undisclosed income laid down in Part-II of the return in Form No. 2B, the figures in columns C and D a are constants, i.e., they are culled from the returns filed by the assessee and its assessment records. They figure in Part-II of the return only for the quantification of the undisclosed income. They are not affected by such quantification. The go back to the regular assessment record and the losses u....
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....s, my position on the points of difference framed by the learned JM is as follows: 26. Point 1: The Assessing Officer is correct in treating the current year's depreciation as part of loss for the purpose of computation of undisclosed income under section 158BB. 27. Point 2: There can be undisclosed income even in a case where the aggregate of the total income of the previous years falling within the block period is computed at a loss if the said aggregate is less than the aggregate of the losses of the previous years determined as per clauses (a) to (f) of section 158BB. When there is such undisclosed income, though by way of a reduction in the aggregate of the losses, it can be brought to tax under section 113. 28. Point 3: Current depreciation which is not absorbed in the regular assessment should also be taken into consideration while computing the relevant year's income included in the block period for the purposes of working out the undisclosed income. In the method adopted by the Assessing Officer for computing the undisclosed income, such unabsorbed current depreciation has been given deduction. 29. My position in respect of the points of difference framed by th....
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.... of tax under section 113 only if there is a positive income, and if the aggregate under section 158BB is a figure of loss, there cannot be a levy of tax. The Hon'ble Vice President, who proposed the original order was of the view that as per sections 32(2),72(2) and 72(3), if the profits of the business are inadequate to give effect to the admissible depreciation, then the depreciation allowable gets split into two parts--one part relating to the assessment year for which it is current depreciation and the second part, which statutorily is made to relate to the allowance and deductions of the following previous year. According to him, 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). According to him therefore the contention of the assessee that the computation of income at 'NIL' for those years where the depreciation admissible for current year exceeded the ....