Commissioner Of Income-Tax v. M/S Amritsar Processors (P) Ltd

ITA No. 535 of 2007 IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Commissioner of Income-tax Versus M/s Amritsar Processors (P) Ltd. ITA No. 535 of 2007 Date of Decision: 6.4.2011 ....Appellant. ...Respondent. CORAM:-HON'BLE MR. JUSTICE ADARSH KUMAR GOEL.HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Sukant Gupta, Standing counsel for the appellant.None for the respondent. AJAY KUMAR MITTAL, J. 1.The appeal was admitted by this Court vide order dated18.8.2008 for consideration of the following substantial questions oflaw:- “(i)Whether, on the facts and in the circumstances of thecase, the Tribunal was correct in law in allowing theassessee's clam of loss of later years against theundisclosed income of Rs.12 lacs determined for anearlier year of block period, disregarding the fact thatthe loss was not disclosed in the returns filed u/s139? (ii)Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting thesurcharge on the tax worked out on the undisclosedincome for the reason that search took place in thecase prior to 01.06.2002, whereas the amendment inthe proviso to Section 113 had been made effectivefrom 01.06.2002?” 2.Briefly stated, the facts necessary, for adjudication asnarrated in the appeal are that the search and seizure operation underSection 132(1) of the Income Tax Act, 1961 (in short “the Act”) wascarried out at the business and residential premises of the assessee on 16.1.2001. The Assessing Officer vide order dated 31.1.2003disallowed the claim of loss amounting to Rs.12,00,000/- incurred in theblock period from 01.4.1990 to 16.1.2001 and also levied surcharge onthe undisclosed income. The assessment was completed at a totalundisclosed income of Rs.12,00,000/-. Being aggrieved, the assesseetook the matter in appeal before the Commissioner of Income Tax(Appeals) [hereinafter referred to as “the CIT(A)”] who vide order dated17.9.2004 allowed the claim of loss of the assessee and also deletedthe surcharge levied on the undisclosed income holding that proviso toSection 113 was inserted in the Act prospectively w.e.f. 1.6.2002.Against the order of the CIT(A), the revenue filed an appeal before theIncome Tax Appellate Tribunal, Amritsar Bench, Amritsar (in short “theTribunal”). The Tribunal vide order dated 10.11.2005 upheld the view ofthe CIT(A) and dismissed the appeal. Hence, the present appeal by therevenue. 3.We have heard learned counsel for the revenue. 4.The issue that arises for consideration in this appeal is two fold; (I)Whether the assessee's claim of loss of lateryears could be set off against the undisclosedincome relating to previous years of an earlieryear falling within the block period.years could be set off against the undisclosedincome relating to previous years of an earlieryear falling within the block period. (II)Whether the deletion of surcharge by the CIT(A) and the Tribunal holding that the surchargeis not leviable as the search took place prior to1.6.2002 was justified.(A) and the Tribunal holding that the surchargeis not leviable as the search took place prior to1.6.2002 was justified. 5. 3.We have heard learned counsel for the revenue. 4.The issue that arises for consideration in this appeal is two fold; (I)Whether the assessee's claim of loss of lateryears could be set off against the undisclosedincome relating to previous years of an earlieryear falling within the block period.years could be set off against the undisclosedincome relating to previous years of an earlieryear falling within the block period. (II)Whether the deletion of surcharge by the CIT(A) and the Tribunal holding that the surchargeis not leviable as the search took place prior to1.6.2002 was justified.(A) and the Tribunal holding that the surchargeis not leviable as the search took place prior to1.6.2002 was justified. 5. 5. Learned counsel for the Revenue argued that the year-wise detail of undisclosed income for the block period filed along withthe return depicts that the assessee had undisclosed income ofRs.8,54,947/- relating to assessment year 1992-93 whereas the lossclaimed of Rs.3,54,053/- is relating to each of the assessment yearsfrom 1993-94 to 1998-99 and loss of Rs.54,000/- in respect ofassessment year 2000-01. It was urged that the losses of subsequentyears could not be set off against the income of earlier years evenunder normal provisions of the Act and while framing block assessment,thus, undisclosed income of Rs.8,54,947/- in respect of assessmentyear 1992-93 could not have been adjusted against future lossesthough of block period. It was submitted that the CIT(A) and theTribunal had not considered this aspect and had mechanically followedearlier decision of the Tribunal in the case of B.D.A vs. ACIT, 65 ITD501 (Mumbai). Reference was made to the decision of the Hon'bleSupreme Court in E.K. Lingamurthy and another v. Settlement Commission (Income Tax and Wealth Tax) and another, [2009] 314ITR 305. 6. Section 158BB of the Act provides for computation ofundisclosed income of the block period. Sub-section (4) thereofstipulates that while framing assessment under that Chapter, lossesunder Chapter VI or unabsorbed depreciation under Section 32(2)which had been allowed to be brought forward from the previous yearsshall not be set off against the undisclosed income of the blockassessment. It shall, however, be carried forward and set off in theregular assessments. Sub-section (4) of Section 158BB of the Act readsthus: COMPUTATION OF UNDISCLOSED INCOME OF THE BLOCKPERIOD “158BB ... ....... (4)for the purpose of assessment under this Chapter,losses brought forward from the previous year underChapter VI or unabsorbed depreciation under sub-section(2) of Section 32 shall not be set off against theundisclosed income determined in the block assessmentunder this Chapter, but may be carried forward for beingset off in the regular assessments.” 7.The Apex Court in E.K. Lingamurthy and another's case(supra) examining the scheme of 158BB of the Act, had laid down thatthere is no prohibition in the statute for setting off of losses incurred inany of the previous years falling in the block period against the incomeassessed in other previous years in the block period. It was observed as “In order to answer the contention raised on behalf ofthe assessee, one has to examine the scheme of Section158BB of the 1961 Act. It is not in the controversy thatChapter XIV-B constitutes a fraud by itself. 7.The Apex Court in E.K. Lingamurthy and another's case(supra) examining the scheme of 158BB of the Act, had laid down thatthere is no prohibition in the statute for setting off of losses incurred inany of the previous years falling in the block period against the incomeassessed in other previous years in the block period. It was observed as “In order to answer the contention raised on behalf ofthe assessee, one has to examine the scheme of Section158BB of the 1961 Act. It is not in the controversy thatChapter XIV-B constitutes a fraud by itself. In this case, we are concerned with the computationof “undisclosed income” under Section 158BB of the Act.Section 158BB, inter alia, states that undisclosed incomeof the block period shall be “the aggregate of the totalincome of the previous years falling within the block period”computed in accordance with the provisions of Chapter IV.“Total income” is defined in Section 2(45) to mean the totalamount of income referred to in Section 5, computed in themanner laid down in the Act. In other words, Chapter XIVdoes not rule out. Chapter IV of the Act in the matter ofcomputation of undisclosed income under Chapter XIV-B.It may be mentioned that ordinarily, in the case of regularassessment, the unit of assessment is one year consistingof twelve months whereas in the case of blockassessment, the unit of assessment consists of tenprevious years and the period up to date of the search.Section 158BB provides for aggregation of income/loss ofeach previous year comprised in the block period. Theblock period assessment under Chapter XIV-B is inaddition to regular assessment. Analysing Section 158BB(4) read with Explanation (a) thereto, one finds that only brought forward losses ofthe past years under Chapter VI and unabsorbeddepreciation under Section 32(2) are to be excluded whileaggregating the total income or loss of each previous yearin the block period but set off of the loss suffered in any ofthe previous year in the block period against the incomeassessed in other previous years in the block period is notprohibited.” 8.According to judgment of the Apex Court in E.K.Lingamurthy and another's case (supra) only those losses which areincurred in any of the previous years falling in the block period are to beadjusted or set off against income assessed in other previous years inthe block period. The issue before the Apex Court in the aforesaidpronouncement was not relating to adjustment or set off of lossesrelating to pervious years falling in the block period against undisclosedincome of the previous years arising prior to the year of losses. Inabsence of any specific provision, the losses of subsequent years underthe Act cannot be set off or adjusted against income arising in theprevious years prior to the said year. Thus, any undisclosed incomewhich had been shown in the return is not available for adjustment orset off of losses arising in subsequent previous years falling in the blockperiod even if the previous year of undisclosed income falls within theblock period. Therefore, undisclosed income of Rs.8,54,947/- relating toassessment year 1992-93 could not have been held to be available forset off of losses relating to block period from 1993-94 to 2000-01. Theissue, therefore, stands answered in favour of the Revenue as indicated above. 9. 9. The second issue relating to levy of surcharge on theassessee where the search had taken place prior to 1.6.2002 standsconcluded in favour of the Revenue by the decision of this Court inIncome Tax Appeal No. 126 of 2004, (Commissioner of Income Tax(Central) vs. M/s. Bansal Sweet House, Amritsar), decided on22.2.2011, wherein following the decision of the apex Court inCommissioner of Income Tax vs. Suresh N. Gupta, (2009) 297 ITR322 (SC), it was held as under: above. 9. 9. The second issue relating to levy of surcharge on theassessee where the search had taken place prior to 1.6.2002 standsconcluded in favour of the Revenue by the decision of this Court inIncome Tax Appeal No. 126 of 2004, (Commissioner of Income Tax(Central) vs. M/s. Bansal Sweet House, Amritsar), decided on22.2.2011, wherein following the decision of the apex Court inCommissioner of Income Tax vs. Suresh N. Gupta, (2009) 297 ITR322 (SC), it was held as under: “8.The matter is no longer res integra. The similar issuecame up for consideration before the Hon’ble SupremeCourt of India in Suresh N. Gupta’s case (supra), whereinit was held that the proviso to Section 113 which wasinserted by Finance Act, 2002 was curative in nature. Therelevant observations of the Apex Court in the context areas under: “There is one more reason for rejecting the abovesubmission. Prior to June 1,2002, in several cases, tax wasprescribed sometimes in the 1961 Act and sometimes inthe Finance Act and after in both. This made liabilityuncertain. In the present case, however, the rate of tax incase of block assessment at 60 per cent was prescribed bysection 113 but the year of the Finance Act imposingsurcharge was not stipulated. This resulted in the abovefour ambiguities. Therefore, clarification was needed. Theproviso was curative in nature. Hence, the proviso inserted in section 113 merely clarifies that out of the above fourdates, the relevant date for applicability of the Finance Actwould be the year in which the search stood initiated undersection 158BC.” 9. Accordingly, the issue stands concluded by theaforesaid decision of the Supreme Court wherein it hasbeen laid down that the proviso to Section 113, insertedvide Finance Act, 2002, with effect from June 1, 2002, wasapplicable to block assessments under Chapter XIV-B ofthe Act and surcharge on income tax would be imposableeven in those cases where search had taken place prior to1.6.2002 according to the Finance Act of the particular yearin which search had taken place. It has further been heldthat the proviso was only clarificatory and, therefore,question of its retrospective effect did not arise.” 10. Accordingly, the aforesaid issue is adjudicated in favour of the Revenue. 11.In view of the above, the substantial questions of law areanswered in favour of the Revenue. The appeal stands allowed. (AJAY KUMAR MITTAL) JUDGE (ADARSH KUMAR GOEL) JUDGE