The Commissioner Of Income Tax (Central), Ludhiana v. M/S. Hukam Chand Raj Kumar Commission Agent, Anaj Mandi, Nissing

In the High Court of Punjab & Haryana at Chandigarh I. T. A. No. 500 of 2007Date of decision : 18.8.2008 The Commissioner of Income Tax (Central), Ludhiana ..... Appellant vs M/s. Hukam Chand Raj Kumar Commission Agent, Anaj Mandi, Nissing ..... Respondent Coram:Hon'ble Mr. Justice Hemant GuptaHon'ble Mr. Justice Rajesh Bindal Present: Mr. K. K. Mehta, Advocate, for the appellant. Mr. Deepak Sharma, Advocate, for the respondent. Rajesh Bindal J. The revenue is in appeal before this court against the orderpassed by the Income Tax Appellate Tribunal, Delhi Bench 'B', New Delhi,in ITA (SS) No. 350/D/2002 dated 16.3.2007 for the block period 1.4.1989to 31.3.2000, raising the following substantial questions of law:- i)“Whether on the facts and in the circumstances of thecase, the Tribunal was correct in law in holding thatthe recordings in the seized documents will have tobe further corroborated by deeper investigation toprove its authenticity; and in admitting the deviationfrom the past practice admitted by surrender ofincome in previous years while charging interest onthe same set of debtors ? ii) Whether on the facts and in the circumstances of thecase, the ITAT can condone the delay in filing ofreturn for the purpose of computing interest u/s158BFA (1) of the Income Tax Act ? iii)Whether, on the facts and in the circumstances of thecase, the Tribunal was correct in law in deleting thesurcharge levied under proviso to section 113 of theIncome Tax Act on the ground that search had taken place in case of assessee prior to the insertion of theproviso w.e.f. 1.6.2002 ?” On 25.2.2008 considering the submissions made by the learnedcounsel for the appellant, notice was issued in the appeal only forconsideration of question no. 3 as referred to above. Learned counsel for the appellant submitted that as the onlyquestion remaining to be decided in the present appeal is squarely coveredby the judgment of Hon'ble the Supreme Court in Commissioner of IncomeTax vs Suresh N. Gupta[2008] 297 ITR 322 (SC), it may be heard anddecided finally at the motion hearing. With the consent of the parties, the instant appeal is heard forfinal disposal. Briefly, the facts are that on 31.3.2000, a search was made atthe business and residential premises of the firm and its partners. In additionto the regular books of accounts and documents, a number of documentsrecording accounts of undisclosed transactions and income were found.Assessment under Section 158 BC (c) of the Income Tax Act, 1961 (forshort, 'the Act') was framed at an undisclosed income of Rs. 57,54,863/-.Surcharge on the tax payable was also levied. The Tribunal while acceptingthe plea of the respondent-assessee set aside levy of surcharge by relyingupon a Special Bench judgment of the Tribunal in the case of MeritEnterprises vs DCIT 101 ITD 1 (Hyd.) (SB) and further a judgment of thiscourt inCommissioner of Income Tax vs Roshan Singh Makkar(2006) 203CTR (P&H) 125. Learned counsel for the revenue submitted that after the earlierjudgment of this Court inRoshan Singh Makkar's case (supra), opining thatthe surcharge was not leviable in case search was carried out before1.6.2002, as the amendment in Section 113 of the Act was made with effectfrom that date, in a subsequent judgment in Lalit Hosiery and others vsUnion of India and others(CWP No. 2046 of 2005 decided on 18.10.2006)a Division Bench of this Court while referring to judgment inRoshan LalMakkar's case(supra) and considering that there was a provision of levy ofsurcharge in the Finance Act itself, held that even for any search conductedprior to 1.6.2002, the surcharge was leviable on the tax assessed. An identical issue came up for consideration before Hon'ble the Learned counsel for the revenue submitted that after the earlierjudgment of this Court inRoshan Singh Makkar's case (supra), opining thatthe surcharge was not leviable in case search was carried out before1.6.2002, as the amendment in Section 113 of the Act was made with effectfrom that date, in a subsequent judgment in Lalit Hosiery and others vsUnion of India and others(CWP No. 2046 of 2005 decided on 18.10.2006)a Division Bench of this Court while referring to judgment inRoshan LalMakkar's case(supra) and considering that there was a provision of levy ofsurcharge in the Finance Act itself, held that even for any search conductedprior to 1.6.2002, the surcharge was leviable on the tax assessed. An identical issue came up for consideration before Hon'ble the Supreme Court inSuresh N. Gupta's case (supra), where the question wasregarding levy of surcharge for the block period comprising of assessmentyears 1991-92 to 2000-01. In that case search was conducted on 17.1.2001i.e. before the date when the proviso to Section 113 of the Act were addedin the Act on 1.6.2002. Referring to Article 271 read with Entry 82 of List Iof Seventh Schedule to the Constitution of India, Hon'ble the SupremeCourt opined that power to levy surcharge is not traceable to Section 4 ofthe Act. Every year the Finance Act is enacted by the Parliament to giveeffect to the financial proposals of the Central Government. The rate atwhich a charge on the total income of the previous year is imposed underSection 4(1) of the Act is not laid down therein, and therefore, the saidsection provides that the charge has to be fixed by the Central Act. Therelevant paras from the judgment in Suresh N. Gupta'scase (supra) areextracted below:- “Under section 158 BB, there is the theory of “block-period”. It is based on “the principle of aggregation oftotal incomes”. Under that section, the first aggregate tobe computed is the total income of the previous yearsfalling within the block period including returned/assessed incomes as per regular returns and regularassessments. The second aggregate to be computed isthe aggregate of the total incomes/ losses of theprevious years determined in terms of clauses (a) to (f)of section 158BB (1). The difference between the firstaggregate and the second aggregate is described insection 158B (b) as the “undisclosed income” to betaxed under the provisions of section 113 of the 1961Act at the special rates prescribed. Further, clause (a) ofthe Explanation to section 158BB clarifies that the totalincome/loss of each previous years shall, for thepurpose of aggregation, be taken as the total income orloss computed in accordance with the provisions ofChapter IV without giving effect to set off of broughtforward losses under Chapter VI or unabsorbeddepreciation under section 32 (2) of the 1961 Act. Hence, once has to read section 158BB with section 4of the 1961 Act. There is no conflict between thecomputation machinery under Chapter XIV-B andnormal computation machinery under Chapter IV. Thisis the importance behind enactment of section 158BHwhich inter alia states that if there is no conflictbetween the provisions of Chapter XIV-B and any otherprovisions of the 1961 Act, then the latter will operate.There is a fallacy in the argument of the assessee thatthe concepts of “total income” and “previous year” aregiven a go by in Chapter XIV-B. The above analysis ofsection 158BB indicates that both the concepts areretained in Chapter XIV-B. The only difference is thatsection 4 of the 1961 Act charges the total income of aperson of one single previous year (unit of assessment)whereas section 158BA (2) levies a charge on theincome of a person for the block period of previousyears relevant to 10/6 assessment years. In our view,the words “block period”, as defined in section 158B(a), comprises previous years relevant to 10/6assessment years as one unit of time for the purposes ofassessment. As sated above, the object behind theenactment of Chapter XIV-B is to assess and compute“undisclosed incomes” relatable to different accountingyears in which the income is earned. Therefore, if theblock period comprising of previous years relevant to10/6 assessment years is treated by Parliament as oneunit of time for assessment purpose, one has tocorrelate “undisclosed income” to each of the years inwhich income was earned by the assessee. It is true thatunder Chapter XIV-B, computation of regular incomeand computation of undisclosed income has to beworked out separately. However, to arrive at the figureof undisclosed income, the said parallel calculationshave to converge in order to work out the difference between the first and the second aggregates of the totalincomes/ losses of the previous year, in whichundisclosed income is taxed under section 113.Therefore, in our view, the concept of a charge on the“total income” of the previous year under the 1961 Actis retained even under Chapter XIV-B. Therefore,section 158BB which deals with computation ofundisclosed income of the block period has to be readwith computation of total income under Chapter IV ofthe 1961 Act. Once section 158BB is required to be read withsection 4 of the 1961 Act, then the relevant Finance Actof the concerned year would automatically standattracted to the computation under Chapter XIV-B.” xxxxxxxxx As stated above, section 158BA(2) read withsection 4 of the 1961 Act looks at section 113 for theimposition rate at which tax has to be imposed in thecase of block assessment. That rate is 60 per cent. Thatrate is fixed by the 1961 Act itself. That rate has beenstipulated by Parliament not with a view to oust thelevy of surcharge but to make the levy cost-effectiveand easy. Therefore, a flat rate is prescribed. Thedifficulty in block assessment is that one has tocorrelate the undisclosed income to different years inwhich income is earned, hence, Parliament has fixed aflat rate of tax in section 113 [see [1995] 212 ITR (St.)691. On the contrary, a bare perusal of various FinanceActs starting from 1999 indicates that Parliament wasaware of the rate of tax prescribed by section 113 andyet in the various Finance Acts, Parliament has soughtto levy surcharge on the tax in the case of blockassessment. .......... For the aforestated reasons, we hold that evenwithout the proviso to section 113 (inserted vide Finance Act, 2002, with effect from June 1, 2002), theFinance Act 2001, was applicable to block assessmentunder Chapter XIV-B in relation to the search initiatedon January 17, 2001, and accordingly surcharge wasleviable on the tax amounting to Rs. 97,456 at 17 percent amounting to Rs. 16,504. We accordingly answerthe above question in favour of the Revenue andagainst the assessee. For the aforestated reasons, we hold that evenwithout the proviso to section 113 (inserted vide Finance Act, 2002, with effect from June 1, 2002), theFinance Act 2001, was applicable to block assessmentunder Chapter XIV-B in relation to the search initiatedon January 17, 2001, and accordingly surcharge wasleviable on the tax amounting to Rs. 97,456 at 17 percent amounting to Rs. 16,504. We accordingly answerthe above question in favour of the Revenue andagainst the assessee. Whether insertion of the proviso in section 113by the Finance Act, 2002 was applicable to search up toMay 31, 2002 : In view of our findings on the first point, strictlyspeaking we are not required to examine this question.However, it has been vehemently urged on behalf of theassessee that the said proviso cannot operateretrospectively. This argument is founded on the basisthat until the amendment in section 113 with effectfrom June 1, 2002, there was inconsistency with regardto levy of surcharge. According to the assessee, thequestion which usually bothered both the assessee andthe Department was whether surcharge was leviablewith reference to the rates provided for in the FinanceAct of the year in which the search was initiated or theyear in which the search was concluded or the year inwhich the block assessment proceedings under Section158BC were initiated or the year in which blockassessment order was passed. According to theassessee, there was a conference of ChiefCommissioners which had suggested to the CentralGovernment to amend section 113 with retrospectiveeffect. However, despite such recommendations, theCentral Government inserted the proviso in section 113only with effect from June 1, 2002. Therefore,according to the assessee, the proviso cannot beinterpreted as retrospective. We find no merit in the above arguments. Both,the Finance Acts of 2000 and 2001, indicated that asubstantive charge was created in respect of the incometax to be levied. Both these Acts prescribed the rates ofsurcharge. The said surcharge did not depend for itsleviability on the assesee's liability to pay income-taxbut on the assessed tax. The assessee has relied uponthe above anomalies in support of their contention thatsuch anomalies made the charge ineffective. In ourview, such submission amounts to begging thequestion. According to the assessee, prior to June 1,2002, the position was ambiguous as it was not cleareven to the Department as to which year's Finance Actwould be applicable. To clear this doubt precisely, theproviso has been inserted in section 113 by which it isindicated that the Finance Act of the year in which thesearch was initiated would apply. Therefore, in ourview, the said proviso was clarificatory in nature. Intaxation, legislation of the type indicated by the provisohas to be read strictly. There is no question ofretrospective effect. The proviso only clarifies that outof the four dates, Parliament has opted for the date,namely the year in which the search is initiated, whichdate would be relevant for applicability of a particularFinance Act. Therefore, we have to read the proviso asit stands. There is one more reason for rejecting the abovesubmission. Prior to June 1, 2002, in several cases, taxwas prescribed sometimes in the 1961 Act andsometimes in the Finance Act and often in both. Thismade liability uncertain. In the present case, however,the rate of tax in case of block assessment at 60 per centwas prescribed by section 113 but the year of theFinance Act imposing surcharge was not stipulated.This resulted in the above four ambiguities. Therefore, clarification was needed. The proviso was curative innature. Hence, the proviso inserted in section 113merely clarifies that out of the above four dates, therelevant date for applicability of the Finance Act wouldbe the year in which the search stood initiated underSection 158BC.” There is one more reason for rejecting the abovesubmission. Prior to June 1, 2002, in several cases, taxwas prescribed sometimes in the 1961 Act andsometimes in the Finance Act and often in both. Thismade liability uncertain. In the present case, however,the rate of tax in case of block assessment at 60 per centwas prescribed by section 113 but the year of theFinance Act imposing surcharge was not stipulated.This resulted in the above four ambiguities. Therefore, clarification was needed. The proviso was curative innature. Hence, the proviso inserted in section 113merely clarifies that out of the above four dates, therelevant date for applicability of the Finance Act wouldbe the year in which the search stood initiated underSection 158BC.” In the present case the search was conducted on 31.3.2000. Interms of the authoritative pronouncement by Hon'ble the Supreme Court inSuresh N. Gupta's case (supra), the substantial question of law, referred toabove, in answered in favour of the revenue and against the assessee.The appeal is disposed of accordingly. ( Rajesh Bindal) Judge 18.8.2008vs. (Hemant Gupta)Judge