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Judgment
Chitra Venkataraman, J.—The Tax Case Appeals are filed by the Revenue against the orders of the Income Tax Appellate Tribunal relating to assessees viz., N. Chandramoulidevi, V. Hemalatha and N. Venkatesan.
The following substantial question of law is raised in T.C. Nos. 463 and 464/2005:
Whether on the facts and in the circumstances of the case, the Income Tax Appellate Tribunal was right in setting aside the block assessment made u/s 158BC of the Income Tax Act on the assessee for the block eriod ended 09.11.1995 with the direction that the total income or loss of each revious year should be computed as er the rovisions of Chapter IV, even though the returns for the assessment years 1994-95 and 1995-96 were not filed without considering the retrospective amendment made to Explanation to Section 158BB by Finance Act with effect from 01.07.1995?
The following substantial questions of law are raised in T.C. No. 1308 of 2005:
Whether, in the facts and circumstances of the case, the Tribunal was right in holding that losses of the assessment year 95-96 claimed in the belated return had to be set off against the undisclosed income for the block assessment years85-86 to 95-96 ?
Whether in the facts and circumstances of the case, the losses that are not ermitted to be carried forward on account of delayed filing of return, can be treated as undisclosed and set off against undisclosed income under Chapter XIV B of the Income Tax Act?
The appeals relate to the case of block assessment covering the Block eriod 1985-86 to 1994-95. A search was carried out in the premises of Soora Nagarajan on 09.11.1995, who was the Managing Director of M/s. Soora Thayarammal Shopping Complex (P) Limited as well in the remises of K.M. Basha Group of Companies. The assesses are stated to be the niece of Soora Nagarajan, who was one of the share holders of the Company M/s. Soora Thayarammal Shopping Complex (P) Limited. Based on the results of the search, notice u/s 158BC read with 158BD of the Income Tax Act, 1961 was issued to the assessees calling for returns of the Block eriod. In all the three cases, the assessee filed their return admitting ''NIL'' undisclosed income.
As against the assessment made, the respective assessee filed appeals before the Income Tax Appellate Tribunal. Based on the orders assed in the case of Shri. N. Nandakumar, Shri Soora Nagarajan, Shri N. Venkatesan, Smt. N. Vimala, the Tribunal allowed the appeals and set aside the order of the Assessing Officer by giving direction to the Assessing Officer to allow the assessees'' claim for long term and short term capital loss arising from the sale of shares, which had taken lace during the block eriod ending 09.11.1995 and compute the total undisclosed income of the assessees. Aggrieved by the said direction, the Revenue is on appeal before this Court raising the above questions of law.
Learned Standing Counsel for the Revenue laced before this Court the decision in T.C. 280 of 2004 dated 07.07.2004 in the case of Commissioner of Income Tax, Coimbatore Vs. Sri Soora Nagarajan, wherein, this Court dismissed the Tax Case Appeal filed by the Revenue ointing out that the order of the Income Tax Appellate Tribunal was assed with the consent of the Revenue to remit the matter back to the Assessing Officer to determine the value of the land, shares and capital loss after giving opportunity to the assessee. In the background of the said fact, this Court ointed out that it is not necessary to get into the contentions of the Revenue.
Learned counsel for the Assessee laced before this Court the decision in the case of Commissioner of Income Tax Vs. Soora Subramanian reported in (2011) 330 ITR 591 (Mad), wherein, this Court ointed out that on a debatable issue, there could be no rectification of the assessment order. As far as the reported decision is concerned, we do not think that that the said decision will have any relevance to the case on hand, since, a reading of the judgment of this Court shows that it related to the question of rectification and as regards loss adjustment in the computation of income of the Block eriod.
Referring to the unreported decision of this Court in T.C. 280 of 2004 dated 07.07.2004 in the case of Commissioner of Income Tax, Coimbatore Vs. Sri Soora Nagarajan, learned counsel for the Revenue submits that the same exercise may be done in the cases before us too to remand the matter back to the Assessing Officer for considering the effect of amendment to Explanation to Section 158 BB, which was made under the Finance Act, 2002 with effect from 01.07.1995.
Learned counsel for the assessee also laced before us the decision of the Apex Court in the case of E.K. Lingamurthy and Another Vs. Settlement Commission (Income Tax and Wealth Tax) and Another, wherein the scope of Explanation (a) to Section 158BB(4) was considered by the Apex Court. Hence, the benefit of the said section be applied herein to reject the Tax Case Appeals filed by the Revenue.
However, learned Standing Counsel for the Revenue ointed out that the said decision has relevance to the Explanation brought before the amendment by Finance Act 2002; there was no consideration as regards the amended rovision made retrospectively i.e., with effect from 01.07.1995. Learned Standing Counsel ointed out that in the light of the amended retrospective rovision, the assessees'' case will fall u/s 158BB clause (c) or (ca) and therefore, answering the substantial questions of law against the Revenue may not be correct. He further ointed out that having regard to the fact that the assessees'' case herein falls as a group case along with T.C. 280 of 2004, in fitness of things, the same may be remanded back to the Assessing Officer to consider the Explanation as well as the relevancy of clause (c) of Section 158BB.
Before going into the contentions raised by both counsel, it is worthwhile to extract the rovision of law u/s 158BB as it stood originally rior to the amendment and ost amendment. Section 158BB and the Explanation rior to the amendment under Finance Act, 2002 reads as follows:
158BB(1)The undisclosed income of the block eriod shall be the aggregate of the total income of the revious years falling within the block eriod computed in accordance with the rovisions of Chapter IV, on the basis of evidence found as a result of search or requisition of books of account or documents and such other materials or information as are available with Assessing Officer, 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 revious years, determined
.......................
Explanation: For the urposes of determination of undisclosed income-
(a) the total income or loss of each revious year shall, for the urpose of aggregation, be taken as the total income or loss computed in accordance with the rovisions of Chapter IV without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of Section 32:
(b) of a firm, returned income and total income assessed for each of the revious years falling within the block eriod shall be income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called:
Provided that undisclosed income of the firm so determined shall not be chargeable to tax in the hands of the artners, whether on allocation or on account of enhancement;
(Substituted by the Finance ( NO. 2) Act, 1996, w.r.e.f.1.7.1995. rior to its substitution clause (b) read as under:
(b) of a firm, or its artners, the method of computation of undisclosed income and its allocation to the artners shall be in accordance with the method adopted for determining the assessed income or returned income for each of the revious years falling within the block eriod."
(c) assessment u/s 143 includes determination of income under sub-section (1) or sub-section (1B) of section 143...............
Section 158BB and the Explanation after amendment by the Finance Act, 2002, w.r.e.f. 01.07.1995 :
158BB (1) The undisclosed income of the block eriod shall be the aggregate of the total income of the revious years falling within the block eriod computed, (in accordance with the rovisions 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 Assessing Officer 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 revious years, determined.
.............................
Explanation :-For the urposes of determination of undisclosed income, (a) the total income or loss of each revious year shall, for the urpose of aggregation, be taken as the total income or loss computed in accordance with the rovisions of (this Act) without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32 :
(Provided that in computing deductions under Chapter VI-A for the urposes of the said aggregation, effect shall be given to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32;)
(Inserted by the Finance Act, 2002 w.r.e.f. 01.07.1995)
(b) of a firm, returned income and total income assessed for each of the revious years falling within the block eriod shall be the income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called ( to any artner not being a working
artner):
Provided that undisclosed income of the firm so determined shall not be chargeable to tax in the hands of the artners, whether on allocation or on account of enhancement;)
(c) assessment u/s 143 includes determination of income under sub-section (1) or sub-section (1B) of section 143.
The effect of amendment thus is that as against the hrase in accordance with "provisions of Chapter IV", the Finance Act, 2002 substituted the hrase "in accordance with the rovisions of this Act". Thereby the total income or loss for each of the revious year has to be taken as total income or loss computed in accordance with the rovisions of "this Act". Thus, by reason of the amendment with effect from 01.07.1995, whatever one may face as by way of restriction by the resence of the words "Chapter IV" in the Explanation to the same is now removed and substituted as "in accordance with the rovisions of the Act. Even though the judgment in the case of E.K. Lingamurthy and Another Vs. Settlement Commission (Income Tax and Wealth Tax) and Another, was with reference to the re-amendment rovision, in considering the said provision, the Apex Court ointed out as follows:
......Ordinarily, in the case of regular assessment, the unit of assessment is one year consisting of twelve months whereas in the case of block assessment, the unit of assessment consists of ten revious years and the eriod up to the date of the search. Section 158BB rovides for aggregation of income/loss of each revious year comprised in the block eriod. The block eriod assessment under Chapter XIV-B is in addition to regular assessment.
Analysing Section 158BB(4) read with Explanation (a) thereto, one finds that only brought forward losses of the ast years under Chapter VI and unabsorbed depreciation u/s 32(2) are to be excluded while aggregating the total income or loss of each revious year in the block eriod but set off of the loss suffered in any of the revious year in the block eriod against the income assessed in other revious years in the block eriod is not rohibited. In our view, the Settlement Commission had erred in disallowing the application of the assessee for set off of inter se losses and depreciation accruing in any of the revious years in the block eriod against the income returned/assessed in any other revious year in the block eriod.
On a reading of the law declared by the Apex Court to the above amended rovision, it is clear that in computing the total income or loss of the Block eriod, the income or loss of each of the revious year has to be taken into consideration and computed in accordance with the rovisions of the Act. The only exception being the assessee would not be entitled to set off or brought forward of loss u/s 32(2) of the Income Tax Act, 1961. Thus barring the above said carry forward of loss or unabsorbed depreciation, the computation has to take note of the total income or loss of each of the revious year falling under the Block eriod. The removal of the hrase "Chapter IV" and substitution of the hrase "this Act" ractically goes in tune with what is sought to be assessed under Chapter XIV-B.
Learned Standing Counsel appearing for the Revenue ointed out that the determination of the undisclosed income nevertheless has to take note of the situation contemplated under clause (c) or (ca) to Section 158BB of the Income Tax Act, 1961. In the absence of facts available therein and considering the remand already made in the group case, the matter may be remitted back to the Assessing Officer concerned. He ointed out that even though the order assed by the Tribunal states that the assessee had not filed return of income from the assessment year 1995-96 up to the date of search, in aragraph 2.3, it was stated by the Tribunal that "business loss for the assessment year 1994-95 amounting to Rs.1,08,034/-and Rs.53,456/-was ignored by the Assessing Officer while framing block assessment by giving the reason that as the return of income was not filed before the search". The facts as regards whether on the due date, the assessee had filed a return of income or had not filed any return, as Nil, however are facts that may have to be gone into for a roper finding to be arrived at.
Even though, learned counsel for the assessee objects to the line of reasoning of the Revenue, yet, considering the fact that the Tribunal had correctly followed the order of the group case to set aside the assessment and to allow the claim of the assessee for short time and long time capital loss, which has arisen during the block eriod, we feel that in the light of the amendment thus seen in the Explanation under the Finance Act, 2002, the roper course would be to remit the matter back to the Assessing Officer for redoing assessment. The Officer concerned shall take note of the decision in the case of E.K. Lingamurthy and Another Vs. Settlement Commission (Income Tax and Wealth Tax) and Another, and ass order in accordance with law. We hereby make it clear that even though the above cited decision makes a reference to the Explanation as it stood rior to Finance Act, 2002, yet, the judgment of the Supreme Court articularly in aragraph 8, has relevance to the Explanation brought in by the amendment under the Finance Act, 2002.
In the result, the Tax Case (Appeals) stand disposed of on the above terms. No costs.