TaxTMI 
TaxTMI 
2014 (11) TMI 53
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.... to 1997-98. Broadly stated, he took the view that the aggregate of losses posted for the period of one decade, in the annual assessments, was Rs. 12,59,78,540, and if the undisclosed income of Rs. 1,46,02,752 is taken into account, the loss would get reduced to Rs. 11,13,75,788. Through his order dated March 12, 1998, the Income-tax Officer levied tax on the differential amount of the loss, by treating it as undisclosed income. An appeal was filed by the appellant before the Appellate Tribunal, against the order of the Income-tax Officer. Two contentions were urged before the Tribunal : The first was that the occasion to levy penal tax would arise, if only the search and the consequential block assessment resulted in showing of income, over and above the loss that was shown in the individual assessments for the corresponding period ; and if the undisclosed income has the effect of just reducing the loss, no tax can be levied. The second contention was that, even while making the block assessment, the depreciations, allowances and reductions, as are provided in respect of the regular and normal assessments, must be allowed. It was pleaded that the appellant had to its credit, th....
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.... treated as income. He contends that the undisclosed income needs to be dealt with, strictly in accordance with the provisions of Chapter XIV-B of the Act and even penalty is liable to be levied on such amounts. Learned standing counsel submits that an assessee, who has resorted to the acts of concealing actual income, has to face the consequences, and that the view taken by the Tribunal accords with law. He placed reliance upon the judgment of the Supreme Court in CIT v. Gold Coin Health Food P. Ltd. [2008] 304 ITR 308 (SC). The appellant has been submitting returns, year after year but was uniformly posting losses. Over a period of 10 years, the aggregate of losses was, Rs. 12,59,78,540. In mid 90's, searches were undertaken in the houses and offices of the directors of the appellant company. That resulted in discovery of the undisclosed amount of Rs. 1,46,02,752. The Income-tax Officer passed an order for the block assessment period. He took the view that the unearthed income can straightaway be taxed under the relevant provisions of Chapter XIV-B of the Act. The contention of the appellant was two-fold. The first was that the unearthed income did not wipe away the loss, ....
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.... Set off implies that the tax is exigible and the assessee wants to adjust the loss against profit to reduce the tax demand. It follows that if such set off is not permissible or possible owing to the income or profits of the subsequent year being from a non-taxable source, there would be no point in allowing the loss to be 'carried forward'. Conversely, if the loss arising in the previous year was under a head not chargeable to tax, it could not be allowed to be carried forward and absorbed against income in a subsequent year from a taxable source." Harprasad's case (supra) was referred with approval, in many subsequent decisions, including the one, in Gold Coin's case (supra). The manner in which, the undisclosed income of the block period must be recovered is prescribed in section 158BB of the Act. Broadly stated, it is to the effect that the income found as a result of the search must be added to the aggregate income, shown in 10 years period, spread over the block period, 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. For example, if the aggregate of the income show....
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....s-a-vis the "total income", it cannot be treated as "income" within the connotation of Chapter XIV-B of the Act. On account of the fact that the aggregate losses were huge, the undisclosed income submerged in them, and virtually lost its identity. Hence, there was nothing to be brought under the tax regime of Chapter XIV-B of the Act. The Income-tax Officer as well as the Accountant Member of the Tribunal heavily relied upon the judgment of the Supreme Court in Gold Coin's case (supra), in support of the views. That was a case in which the purport of Explanation 4 to section 271(1)(c)(iii) of the Act was dealt with and explained. As is well-known, section 271 enables levy of penalty on undisclosed incomes. The purpose and objective underlying section 271 is totally different from the one, under Chapter XIV-B. Irrespective of the manner in which an undisclosed income must be treated in the assessment, the factum of concealment itself would expose the assessee, to penalty. Their Lordships took note of the recommendations of the Wanchoo Committee, that resulted in addition of Explanation 4(a) to section 271(1) of the Act. The recommendation reads as under (page 313 of 304 ITR) ....