Wp/19623/2002 Of M/S Mahalaxmi Motors Limited v. Settlement Commission (Income Tax And Wealth Tax ~~)~~ [[1]] ~~.~~

* THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM + Writ Petition No.19623 of 2002 %Date: 27.08.2014 M/s.Mahalaxmi Motors Limited and …Petitioner. $Secretary, Income Tax Settlement Commission, Chennai andothers. …Respondents ! Counsel for Petitioner: Sri S.Dwarakanath ^ Counsel for Respondents : Sri J.V.Prasad < GIST: > HEAD NOTE: ? Cases referred(2009) 314 ITR 305 (SC) THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY AND THE HON’BLE SRI JUSTICE CHALLA KODANDA RAM ORDER:(Per the Hon’ble Sri Justice L.Narasimha Reddy) The petitioner is a dealer in machinery relating to bore-well, atSecunderabad and is assessed to income tax. A raid wasconducted in the business premises of the petitioner and those of itsassociate establishments, on 13.12.1995. The procedure underChapter XIV-B of the Income Tax Act, 1961 (for short ‘the Act’), wasinvoked. The block assessment covering the assessment years1985-86 till 13.12.1995 was made. The Assessing Authority passedan order on 31.12.1996, imposing certain amount of tax, upon theundisclosed income. The petitioner approached the SettlementCommission at Chennai, the 1[st] respondent, under Section 245D ofthe Act. Through its order, dated 11.02.2002, the 1[st] respondentdetermined the undisclosed income for the block period atRs.1,36,52,701/- and imposed tax at 60%, aggregating toRs.81,91,620/- The petitioner challenges the said order. Sri S.Dwarakanath, learned counsel for the petitioner, submitsthat the 1[st] respondent did not take into account, the relevantprovisions of Chapter XIV-B of the Act and has disallowed severaldeductions, which are otherwise permissible in law. He contendsthat though the accumulated losses and carried forward,depreciations were referable to the block period, sub-section (4) ofSection 158BB of the Act, was invoked to disallow them. Learnedcounsel submits that the said provision gets attracted only whenthere exist the unabsorbed losses or carried forward depreciation,that have spilled over beyond the block period, and not otherwise. He has placed reliance upon the judgment of the Supreme Court inE.K.Lingamurthy v. Settlement Commission (Income Tax andWealth Tax)[[1]]. Sri J.V.Prasad, learned counsel for the respondents, on theother hand, submits that the scope of determination under Section245D of the Act is limited and it cannot be said to be the adjudicationby the Authority under the Act. He contends that though the 1[st]respondent was entitled to reject the claim, if the disclosures madeby the petitioner were not to its satisfaction, the application wasentertained and a detailed reasoned order was passed. He submitsthat the order passed by the 1[st] respondent completely accords withChapter XIV-B and no exception can be taken to it. On the basis of the search conducted on 13.12.1995 in theestablishments of the petitioner, a block assessment has beenmade. Chapter XIV-A of the Act prescribes a detailed procedure tobe followed in this regard. As a first step, the ‘undisclosed income’ isto be ascertained. This expression is defined under Section 158B(b)of the Act. The determination thereof is provided for under sub-section (1) of Section 158BB. It reads: “158BB. Computation of undisclosed income of the block period.- (1) The undisclosed income of theblock period shall be the aggregate of the total income of theprevious years falling within the block period computed, inaccordance with the provisions of this Act on the basis ofevidence found as a result of search or requisition of booksof account or other documents and such other materials orinformation as are available with the Assessing Officer andrelatable to such evidence, as reduced by the aggregate ofthe total income, or, as the case may be, as increased bythe aggregate of the losses of such previous yearsdetermined,- (a) … (remaining part of the Section isomitted as not necessary at present).” “158BB. Computation of undisclosed income of the block period.- (1) The undisclosed income of theblock period shall be the aggregate of the total income of theprevious years falling within the block period computed, inaccordance with the provisions of this Act on the basis ofevidence found as a result of search or requisition of booksof account or other documents and such other materials orinformation as are available with the Assessing Officer andrelatable to such evidence, as reduced by the aggregate ofthe total income, or, as the case may be, as increased bythe aggregate of the losses of such previous yearsdetermined,- (a) … (remaining part of the Section isomitted as not necessary at present).” Once the undisclosed income is determined in accordancewith the prescribed procedure, the tax has to be levied upon it. However, even in respect of block assessments, the regularprocedure that is followed in respect of ordinary assessments isrequired to be applied. This is evident from Section 158BH, whichreads: “158BH. Application of other provisions of thisAct. – Save as otherwise provided in this Chapter, allother provisions of this Act shall apply to assessmentmade under this Chapter.” The only saving to our mind, which is referable to Section158BH, is the one under sub-section (4) of Section 158BB. theprovision reads as under: “For the purpose of assessment under thisChapter, losses brought forward from the previous yearunder Chapter 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.” A perusal of this indicates that, if an assessee, who has beensubjected to search, has any unabsorbed loss or carried forwarddepreciation, obviously meaning the one which has spilled over theblock period, it shall not be available to be adjusted or set off againstthe undisclosed income. Even while denying such a facility, the Actpreserved such unabsorbed loss or carried forward depreciation, tobe adjusted in the regular assessments. The record, in this case, is not clear as to whether thereexisted any unabsorbed loss or carried forward depreciation, thatspilled over the block period of the writ petitioner. If there exists anysuch components, they are not liable to be adjusted. If, on the otherhand, the losses or depreciations are those which are referable tothe block period, they are liable to be worked out, as though it is a regular assessment which, in fact, is a mandate under Section158BH of the Act. With this clarification, we dispose of the writ petition directingthat the consequential order shall be passed keeping in view theaspects pointed out by us. There shall be no order as to costs. The miscellaneous petition filed in this writ appeal shall alsostand disposed of. ____________________ L.NARASIMHA REDDY, J. _____________________ CHALLA KODANDA RAM, J. Date:27.08.2014L.R. copy to be marked. GJ [1](2009) 314 ITR 305 (SC)(2009) 314 ITR 305 (SC)