Wa/2809/2009 Of Sri.p.mohammed v. Settlement Commissioner (It And Wt) And

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE FRIDAY, THE 25TH DAY OF OCTOBER 2013/3RD KARTHIKA, 1935 WA.No. 2809 of 2009 ( ) IN OP.14856/2002 ------------------------------------------ AGAINST THE JUDGMENT IN OP 14856/2002 of HIGH COURT OF KERALADATED 29-07-2009 APPELLANT(S)/2ND RESPONDENT: ------------------------------------------------------ P. MOHAMMED ALIAS MANU, PALANTHODI HOUSE, KARUVAMBARAM, MANJERI MALAPPURAM DISTRICT. BY ADV. SRI.P.BALAKRISHNAN (E) RESPONDENT(S): --------------------- 1. THE COMMISSIONER OF INCOME TAX, CALICUT. 2. SETTLEMENT COMMISSION (IT & WT), ADDITIONAL BENCH - 488 - 489, ANNASALAI CHENNAI - 600 035. R1 & R2 BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 25-10-2013,ALONG WITH W.A.NO.349/2010 THE COURT ON THE SAMEDAY DELIVERED THE FOLLOWING: dlk WA.No. 2809 of 2009 ( ) IN OP.14856/2002 APPENDIX APPELLANT'S ANNEXURES: ANNEXURE A:-TRUE COPY OF O.P.14856/2002(R) ALONG WITHEXHIBITS. ANNEXURE B:-TRUE COPY OF THE COUNTER AFFIDAVIT DATED 17THNOVEMBER, 2002. RESPONDENTS ANNEXURES :NIL //TRUE COPY// P.A. TO JUDGE. dlk MANJULA CHELLUR,C.J. & A.M.SHAFFIQUE, J. = = = = = = = = = = = = = = = = Writ Appeal Nos.2809 of 2009& 349 of 2010 = = = = = = = = = = = = = = = = = = = = = Dated this the 25th day of October, 2013 JUDGMENT Manjula Chellur,CJ These two appeals arise out of common judgment of thelearned Single Judge dated 29.07.2009 in O.P.No.14856 of 2002.W.A.No.2809 of 2009 is an appeal filed by the party assessee andW.A.No.349 of 2010 is an appeal filed by the Revenue. 2. The undisputed facts in the present appeals are asunder:- 3. The appellant assessee and the wife were partners of afirm known as M/s.Century Complex at Manjeri. There was asearch of the premises of the appellant on 01.02.1996. The firmhad filed its returns of income for the assessment years 1993-94to 1995-96. The appellant-assessee sought for settling the taxpertaining to the block period before the SettlementCommission, that is, block period ending with 01.02.1996. The Writ Appeal Nos.2809 of 2009& 349 of 2010 2 Settlement Commission, while considering income of the houseproperty and the capital gains on sale of Century Complex atManjeri, has taken into account the sale price apart frombrokerage as well as index cost of land appearing in thedocument. Ultimately the long term capital gains was arrived at`22,54,446/-. The applicant had sought reduction of lossesunder two categories under the head of house property. Lossfrom the house property carried forward amounting to`5,15,389/- and interest paid on borrowings for previous yearsthat is `8,20,028/-. So far as brokerage is concerned whether itis excessive or not, it is not the subject matter of dispute beforeus. 4. After considering the stand of the applicant as well asthe department, ultimately the net capital gains was arrived at`59,57,984/-. The Settlement Commission entirely agreed withthe claim of the applicant in respect of set off of house propertyloss carried forward and as well as interest paid on borrowalsthat is `5,15,389/- and `8,20,058/- respectively. Departmentchallenged the said order of the Settlement Commission before Writ Appeal Nos.2809 of 2009& 349 of 2010 the learned Single Judge, though learned Single Judgeconfirmed the opinion of the Settlement Commission, so far asinterest paid on borrowers, did not agree with the settlementcommission so far as allowing deduction of `5,15,389/- opiningthat there is a clear bar against granting of carried forward loss,except in the case of regular assessment under Section 158BB(4)of the Act. Writ Appeal Nos.2809 of 2009& 349 of 2010 the learned Single Judge, though learned Single Judgeconfirmed the opinion of the Settlement Commission, so far asinterest paid on borrowers, did not agree with the settlementcommission so far as allowing deduction of `5,15,389/- opiningthat there is a clear bar against granting of carried forward loss,except in the case of regular assessment under Section 158BB(4)of the Act. 5. Aggrieved by the said judgment both the party appellantand the department are before us as stated above. According tothe learned counsel representing the appellant assessee, if lossis brought forward pertaining to the block period itself whichwas initially not reflected in the regular assessment, he isentitled to seek benefit of such loss pertaining to the incomecomputed after the search, that is, determination of undisclosedincome. In other words, according to him, as long as it formspart of the undisclosed income for the block period, he is entitledto claim such losses brought forward. He places reliance on thereported decision of the Apex Court in E.K.Lingamurthy andanother v. Settlement Commissioner (IT and WT) and Writ Appeal Nos.2809 of 2009& 349 of 2010 another(SC) (2009) 314 ITR 305(SC). The relevant portion ofthe judgment is as under:- “7. In this case, we are concerned with thecomputation of “undisclosed income” under section 158BBof the Act. Section 158BB, inter alia, states thatundisclosed income of the block period shall be “theaggregate of the total income of the previous years fallingwithin the block period” computed in accordance with theprovisions of Chapter IV. “Total income” is defined insection 2(45) to mean the total amount of income referredto in section 5, computed in the manner laid down in theAct. In other words, Chapter XIV does not rule outChapter IV of the Act in the matter of computation ofundisclosed income under Chapter XIV-B. It may bementioned that ordinarily, in the case of regularassessment, the unit of assessment is one year consistingof twelve months whereas in the case of block assessment,the unit of assessment consists of ten previous years andthe period up to the date of the search. Section 158BBprovides for aggregation of income/loss of each previousyear comprised in the block period. The block periodassessment under Chapter XIV-B is in addition to regularassessment. 8. 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. In our view, the Settlement Commission haderred in disallowing the application of the assessee for setof inter se losses and depreciation accruing in any of theprevious years in the block period against the incomereturned/assessed in any other previous year in the blockperiod.” 6. Reading of the above judgment and the interpretationgiven to Section 158BB(4) read with Explanation (a) thereto, weare of the opinion, the learned Single Judge was not justified indisallowing the benefit granted to the assessee by theSettlement Commission so far as losses brought forwardpertaining to the house property that is `5,15,389/-. In the lightof observation of the Apex Court pertaining to Section 158BB(4)read with Explanation (a) how the loss brought forward could be Writ Appeal Nos.2809 of 2009& 349 of 2010 considered while determining the undisclosed income and thebenefit thereunder is in accordance with the procedure underthe Act. So far as the interest paid on borrowals, it is alsojustified. Therefore, the appeal of the department fails andappeal of the party assessee deserves to be allowed. Writ Appeal Nos.2809 of 2009& 349 of 2010 considered while determining the undisclosed income and thebenefit thereunder is in accordance with the procedure underthe Act. So far as the interest paid on borrowals, it is alsojustified. Therefore, the appeal of the department fails andappeal of the party assessee deserves to be allowed. Accordingly Writ Appeal No.2809 of 2009 is allowed andWrit Appeal No.349 of 2010 is dismissed. MANJULA CHELLUR, CHIEF JUSTICE A.M.SHAFFIQUE, JUDGE. sj 25/10