H.B. Stockholdings Ltd. vs Joint Cit on 5 August, 2002

Delhi High Court

Equivalent citations: (2004) 87 TTJ Del 127

ORDER

R.K. Gupta, J.M.

This is an appeal by assessed against the order of Commissioner (Appeals) dated 31-3-2000, decided against the assessment order of assessing officer passed under section 158BC relating to block period from 1-4-1987 to 7-8-1997, involving financial years 1993-94 to 1996-97. As many as 19 grounds of appeal have been taken by the assessed in its appeal.

2. Ground Nos. 1 to 8 are against the sustenance of addition of the following amounts, totalling to Rs. 35,95,34,493:

Financial year

Amount

1993-94

4,24,55,652

1994-95

12,18,01,339

1995-96

15,12,37,620

1996-97

4,40,39,882

2.1 Ground No. 13 is against not allowing the benefit of loss sustained at Rs. 10,30,23,882 claimed in financial year 1996-97, as the assessment for this year was completed at Nil, against the loss shown as above.

2.2 Ground Nos. 9 to 12 are in regard to in not holding the assessment as void ab initio at the end of the Commissioner (Appeals).

2.3 Ground Nos. 14, 17, 18 and 19 are general in nature.

2.4 Ground No. 15 is argumentative.

2.5 Ground No. 16 is an independent ground i.e., against the charging of surcharge on the assessed income for the block period.

3. The brief facts of the case are that the assessed- company is a limited company incorporated on 30-7-1985, having its registered office at 2nd floor, Gopala Tower, 25, Rajendra Place, New Delhi. The company is engaged in the business of sale and purchase of shares and securities. A search and seizure operation was carried on the business premises of the assessedcompany along with other group concerns and certain documents relating to share and security transactions were found and seized. As per the view of the departmental authorities, these papers and documents indicated that the assessed- company has entered into certain sale and purchase transactions with the group companies and in such transactions substantial amount of loss have been booked. Notice under section 168BC was issued by the assessing officer on 9-4-1999 and again on 12-5-1999. The assessed filed applications on 7-5-1999 and then again on 17-5-1999, requesting to supply the copies of seized material, so that the return for the block period under Chapter XIV-B could be filed. From the records it is clear that assessed had deposited Rs. 1,000 on 14-5-1999, for obtaining the copies of the seized material. The return for the block period was filed on 3-6-1999, showing Nil undisclosed income. After that, from time to time, the assessed was required to explain the discrepancies found in the seized material comparing with the regular books of accounts. Replies were filed from time to time and it was stated that there is no discrepancy in the seized material and regular books of accounts because all the transactions entered into by the assessed with various parties are shown in regular books of accounts. However, it was submitted that if there is any specific discrepancy, that may be intimated so that the explanation can be filed. The assessing officer was not satisfied with the replies filed by assessed from time to time. In his view, the assessed has claimed heavy losses-, whereas in fact no loss was incurred in sale and purchase of shares or on account of purchase of securities. It was further observed by the assessing officer that as per Annex. A-53 seized during the course of search, shows that the entries shown in Annex. A-53 are not comparable with the regular books of accounts. It was also observed by the assessing officer that share transaction made within the company were not supported by drawing of vouchers of debits and credits; passing of journal entries, making entries in Sauda book; passing the transactions in the stock exchange; physically delivering the shares or having actual record of transactions of shares.

3.1 Accordingly the assessed was required to explain these deficiencies/discrepancies. The assessed filed reply on 20-8-1999 and it was submitted as under:

(i) No transaction of sale and purchase are non-genuine and all the transactions have been properly recorded in the books of accounts. Correction/audit rectification and reconciliation are part of the book keeping and various transactions.

(ii) Vouchers of the debit/credit have been drawn for all the transactions, irrespective of the concern with whom transactions took place;

(iii) As they are not member of stock exchange they do not maintain sauda book.

(iv) All journal entries have been passed.

(v) The company trades in securities through brokers besides entering into transaction directly. Almost all securities transacted are listed at stock exchange and the transactions have been conducted at prevailing market price if quoted on stock exchange. It is not mandatory to conduct the transaction in securities by passing through the stock exchange only.

(vi) Delivery based transactions have been backed by physical delivery.

(vii) That the revised chart of transaction is in agreement with the audited balance sheet.

3.2 Further, in reply regarding transactions with A. Nitin & Co. and Cornflower Investments, it, was further submitted that both these companies are independent and distinct entities and have no connection with the assessed- company. It was submitted that they are separately registered companies and are assessed to income-tax on regular basis. The confirmation from both of the parties, along with other information as required by the assessing officer, were also filed.

3.3 The assessing officer after considering the reply of the assessed was of the view that true P&L has not been deduced by the assessed while filing the regular returns for the years, which falls under block period. Accordingly the assessing officer prepared a separate list of transactions on the basis of seized material and then drew an adverse inference against the assessed by observing that losses claimed by the assessed in filing regular returns were not genuine losses. Each years transactions were short listed by the assessing officer and then the figure of loss in respective years were arrived at as under

Financial year

Amount

1993-94

4,24,55,652

1994-95

12,18,01,339

1995-96

15,12,37,620

1996-97

4,40,39,882

After discussing further in detail, the assessing officer was of the view that losses, as stated above, are not genuine and accordingly he disallowed the loss to the extent as mentioned above, and the impugned additions were made by the assessing officer while passing the assessment under section 158BC for the block period.

3.4 The assessing officer further required the assessed to explain that why the exemptions claimed under section 47(iv) in respect of capital gain amounting to Rs. 3,91,24,167 be not disallowed, as the sales shown by assessed were shown to be made to its wholly owned subsidiary. The reply was filed and it was submitted that the sales shown to wholly owned subsidiary companies are shown on regular basis and exemptions claimed under section 47(iv) is as per provisions of law. The assessing officer was not satisfied. In his view the exemptions claimed under section 47(iv) are not allowable, because of the shares were held as stock-in-trade or as investment. Therefore, the claim is not allowable. It was further observed by the assessing officer that all, the shares being shown as investment and there is a regular trade activity in these shares, accordingly the exemption under section 47(iv) is not allowable to the assessed. It was also observed by the assessing officer that the losses claimed by assessed have not been found to be genuine. Therefore, the claim of exemption under section 47(iv) is also not allowable. After making recomputation of the claim under section 47(iv), the assessing officer disallowed the exemption at Rs. 3,81,24,167. The assessing officer, thus, computed total undisclosed income of the block period at Rs. 40,13,30,660. The tax payable at 60 per cent on the undisclosed income was computed to the tune of Rs. 24,07,98,396. The assessing officer further charged surcharge at 15 per cent at Rs. 3,61,19,759 and the total demand was raised against the assessed at Rs. 27,69,18,155.

4. The assessed preferred appeal before the Commissioner (Appeals)’s against the order of the assessing officer. The Commissioner (Appeals) after discussing the issue at length, was not satisfied that no addition can be made when the regular returns were filed. He concluded that loss claimed by assessed while filing regular returns was not genuine one. Therefore, the assessing officer was right in disallowing the same and adding to the undisclosed income while passing the assessment under section 158BC.

4.1 However, the Commissioner (Appeals) held that exemptions claimed under section 47(iv) cannot be disallowed while passing the assessment under section 158BC. Accordingly the addition of Rs. 3,81,24,167 was deleted and the remaining addition was sustained.

4.2 The ground of the assessed in regard to surcharge was also dismissed by observing that Finance Act, 1999 provides for imposition of surcharge over and above the tax computed under section 113. Accordingly the levy of surcharge was also sustained. Now the assessed is in appeal here before the Tribunal against the order of the Commissioner (Appeals) dated 31-3-2000.

5. Lengthy arguments were put forth by the learned counsel of the assessed. Attention of the Bench was drawn on various pages of the paper book, along with the case laws, copies of which are placed, in the paper book. Attention of the Bench was also drawn on the written synopsis filed during the course of hearing of appeal. The brief facts in regard to disallowance of loss yearwise was also filed by the counsel of the assessed. On the other hand, the learned Departmental Representative strongly placed reliance on the orders of the authorities below.

6. We have heard the rival submissions and considered them carefully. We have also perused the material on which our attentions were drawn. We have also considered the various case laws relied upon by the learned counsel of the assessed. After considering all the material, we find that assessed deserves to succeed in its appeal in toto.

7. First, we will deal with the legal argument of the learned counsel in regard to that while completing the assessment under section 158BC no addition or disallowance of claim of loss can be made, which were duly disclosed by filing the regular returns or shown in regular books of accounts. The main stress of the learned counsel of the assessed was that assessed- company has been maintaining regular books of accounts since the inception of the company and was filing its regular returns before the concerned tax authorities. Copies of the returns filed by assessed on the basis of regular returns are placed in the paper book at pp. A-180 to 189. These are for assessment year 1994-95 to assessment year 1997-98. We further find that assessments have also been completed for these years. Copies of the orders for these years are placed in the paper book from pp. A190 to A-2 13. Assessment for assessment year 1994-96 was completed under section 143(3) and assessment for assessment year 1995-96 was completed under section 143(1) (a). Copy of order for assessment year 1996-97 passed under section 143(3) is placed at pp. A-199 to A206 and for assessment year 1997-98 the copy of the order is placed at pp. A-207 to A213, which clearly shows that returns on the basis of regular books of accounts were prepared and were filed before the concerned assessing officer ad the assessments were also completed. We further noted that assessment for assessment year 1997-98 was completed on 22-3-2000 i.e., after the date of order under section 158BC for the block period, as the assessment for the block period was completed on 31-8- 1999. We further noted that for assessment year 1997-98 the assessed had shown loss of Rs. 10,34,06,607. Against this loss, the assessment was completed at Nil income. For the assessment year 1996-97 the loss was claimed at Rs. 6,96,64,604 against which the assessment was completed on a loss of Rs, 5,77,03,164. Likewise, in earlier years also the loss was discussed while completing the assessment under section 143(3), means thereby the loss shown by assessed has already been discussed by the assessing officer while completing the assessment under section 143(3).

8. No doubt, the search took place on the assessed and other group concerns of assessed. Some material was found and seized and if any addition can be made, that can be made only on the basis of that material and not on the basis of any expenditure or income disclosed while filing the regular returns. We have seen the assessment order as well as order of the Commissioner (Appeals) and found that they have mentioned at so many places in their orders that assessed has booked the ingenuine transactions in the books for claiming a higher loss. Almost each para of the assessing officer says that assessed has booked ingenuine loss in its book of accounts, which clearly shows that all the transactions were entered by assessed in the regular books of accounts maintained Jin regular course of business. In some paragraph the assessing officer stated that some of the entries made in Annex. A-53, are not in consonance with the entries entered in the regular books of accounts. In reply, the learned counsel has stated that, of course, there may be some difference in the items as per Annex. A-63, but if the journal is taken into consideration, then it will be found that all the transactions made by assessed have already been entered in the journal. It was also submitted that the assessed- company is a share broker and has entered into so many transactions with various parties and after compiling and reconciliation of all transactions with respective parties, then the final figure has been entered in the books of accounts. For further clarification, the intention of the Bench was drawn on the copy of compilation filed before the assessing officer. Accordingly it was explained that if there was any discrepancy, that was due io the compilation of the entries on a later stage. .

9. We further find that this is an admitted position that assessed has shown all the transactions in its books of accounts. This is amply clear from the remand report sent by the assessing officer to the Commissioner (Appeals). Copy of the remand report is placed in the paper book at pp. A-113 to A-121. The assessing officer in para 13 of his remand report has clearly admitted that the loss shown by the assessed was a tutored and tailored loss. The observations of the assessing officer in para 13 are as under :

“It has already mentioned in the assessment order that the books of account of the assessed have not been rejected. What has been disputed is the tutored and tailored lose making transaction which have been entered within the group companies to reduce its profits.” (sic)

9.1 Later on, in para 18, the assessing officer has stated that

“………As already mentioned there are various losses which are shown to have been incurred in the normal course of business but the seized documents are sufficient evidences to indicate that these losses have been tutored and tailored made. The outcome of certain transaction within the group companies, which have been entered into by the assessed to generate losses in the books which have been used to set off the income earned in the normal course of business ……..”

9.2 From these observations of the assessing officer, it is amply clear that all the transactions were entered in the regular books of accounts maintained by it. We have already discussed somewhere above that on the basis of regular books of accounts, the returns have been prepared and filed by assessed before the date of search and we have also found that assessments for these assessment years have also been completed under section 143(3), whereby the losses shown by assessed have already been discussed in those orders.

10. We further noted that main thrust of the assessing officer to disallow the claim of lmss was in regard to transactions entered with A. Nitin & Co. We find that the cheque of Rs. 6.25 crore was not paid by the assessed, but the same was received by assessed from A. Nitin Co. Confirmation of A. Nitin Co. was filed, whereby it was confirmed that they have made a payment of Rs. 6.25 crore to the assessed. On the contrary, the assessing officer has observed in his order that assessed has made the payment of Rs. 6.25 crore to A. Nitin Co., which in fact, is incorrect. Therefore, in our considered view, doubting the transaction, was not justified at the end of the assessing officer. Again we find that the Commissioner (Appeals) also confirmed the action of the assessing officer by merely saying that assessed has booked the ingenuirle loss for lowering its profitability. But not a single instance has been brought on record that how the profits were converted into losses, neither any material was found which shows that any money paid by assessed through cheques has been received by assessed underhand; nor any transaction was found which was not genuine or was not entered in the regular books of accounts. The assessing officer was placing reliance on Annexs. A-53 & A-35, but he has not considered the reconciliation along with reply dated 23-8-1999, filed by the assessed. If the reconciliation could have been considered, then in that case no difference would have been found, as all final entries were entered in regular books of accounts. The Commissioner (Appeals) has also not considered the reconciliation filed by assessed. Both the lower authorities have presumed that assessed must have shown loss bearing transactions just to reduce its profitability. The transactions found entered by assessed with parties, like, A. Nitin & Co., Corn Flower, Suman Investment, M.F.L., S.B. Securities etc. either were confirmed by the respective parties or were found entered in the regular books of accounts. All payments were made through account payee cheques, either they were received by assessed or they were made by assessed. Even not a single transaction was found to be made in cash. Bank accounts were duly disclosed by the assessed and no account was found which was not disclosed by the assessed. Therefore, any transaction made by assessed cannot be said that they were not disclosed either in the regular books of accounts or before the lower authorities.

11. From the orders of the assessing officer it is clearly established that no loss has been claimed by the assessed while filing the return for the block period. The return for the block period was filed at Nil undisclosed income. Copy of the same is placed in the paper book. The assessing officer disallowed the claim of loss claimed by assessed in its regular returns for the assessment years 1994-95 to 1997-98. We are not able to understand that how the assessing officer disallowed the claim of loss claimed by assessed on the basis of regular returns. If the assessing officer wants to disallow any claim that can be disallowed only on the basis of material found and only if the loss has been claimed by assessed while filing the return for the block period. As we have already stated that no loss whatsoever was claimed by assessed, as the return was filed at Nil undisclosed income. The assessment for the assessment years 1994-95 to 1997-98 have already been completed either under section 143(3) or under section 143(1) (a) and the loss claimed by assessed has already been considered by the respective assessing officers either the same has been accepted of the same have been reduced. The details of such loss claimed and reduced we have already discussed in foregoing paragraphs earlier.

12. Various Benches of the Tribunal in the country and various High Courts have held that once the transactions have been shown in regular books of accounts and the returns on the basis of regular books of accounts have been filed, then on that basis no income or loss can be added or disallowed while making the assessment under Chapter XIV-B of the Income Tax Act.

13. In the case of Parakh Foods Ltd. v. Dy. CIT (1998) 64 ITD 396 (Pune), the Pune Bench of the Tribunal has discussed the issue at great length, wherein it has been discussed in detail that what is undisclosed income and what can be added while assessing the income under section 158BC. They have distinguished both the Chapter XIV-B and Chapter XIV. Chapter XIV is in regard to regular assessments completed under section 143(3) or section 148 and Chapter XIV-B is in regard to undisclosed income of block period which contains 10 years. Under Chapter XIV-B the charging of tax is computed under the provisions of section 113 of the Income Tax Act, which is 60 per cent of the total undisclosed income and under Chapter XIV, the tax is charged at normal rate, ranging between various categories of income. Further, it has been observed by the Pune Bench that “if the assessed has disclosed the particulars of income before the date of search and the assessing officer draws an adverse inference and intends to assess the same as income, then such income cannot be treated as undisclosed income. For example, the assessed may claim a particular receipt as not taxable or may claim a particular expenditures allowable deduction under the provisions of Income Tax Act. In such cases, if the assessed has disclosed particulars of such income or expenditure and the assessing officer intends to take a different view, then such income, cannot be termed as undisclosed income, though the same may be considered for inclusion in the total income during the course of regular assessment or reassessment as the case may be, in accordance with law.

The Supreme Court in the case of Indo-Aden Salt Mfg. & Trading Co. v. CIT (1986) 159 ITR 624 (SC), has held that it is the primary facts which are to be disclosed by the assessed and not inferential facts. It was not possible to agree with revenue’s contention that section 158B did not contemplate about disclosure of facts. The words for the purposes of this Act in the end of the definition clause under section 158B are significant.

Where the assessed has disclosed primary facts relating to the particulars of receipts and expenses either in the return or in the course of the assessment proceedings or where the return has not become due, such particulars have been duly recorded in the regular books of account prior to the date of search and the assessing officer intends to assess the same then such income cannot be assessed as undisclosed income within the scope of section 158B(b) merely on the ground that adverse inference is drawn by the assessing officer. However, the assessing officer may perhaps assess the same either by way of regular assessment or reassessment, as the case may be, in accordance with law.”

14. Similar view has been taken by the Bombay Bench in the case of Sunder Agencies v. Dy. CIT (1997) 63 ITD 245 (Mum), wherein it is held that within pale of Chapter XIV-B assessment could be made only in respect of the undisclosed income and such undisclosed income must come as a result of search. Sec. 158BA does not provide a license to revenue for making roving enquiries connected with completed assessment and it is beyond power of the assessing officer to review the assessments completed unless some direct evidence comes to the knowledge of the department as a result of search which indicates clearly the facturn of undisclosed income. Without such evidence or material the assessing officer is not empowered to draw any presumption as to the existence of undisclosed income. A presumption is an inference of fact drawn from other known or proved facts. It is rule of law under which Courts are authorised to draw a particular inference from a particular fact, until and unless the truth of such inference is disproved by other evidence. The scheme of Chapter XIV-B does not give power to the revenue to draw the presumption in regard to the undisclosed income. The assessing officer could. proceed on the basis of material detected at the time of search and the evidence gathered. Under section 132(4), the authorised officer may, during the course of search or seizure, examine on oath any person who is found to be in possession or control of any books of accounts, documents, money, bullion, jewellery or other valuable article or thing and any statement made by such person during such examination may thereafter be used in evidence in any proceeding under the Act.”

15. The Hon’ble Gujarat High Court has also held that both the proceedings are separate, i.e., under Chapter XIV and Chapter XIV-B and both the proceedings can be initiated separately. However, it has been clarified that no addition can be made on the basis of regular return filed before the search or before the due date while completing the assessment under Chapter XIV-B.

16. In the case of D.N. Kamani (HUF) v. Dy. CIT (1999) 70 ITD 77 (Pat)(TM), it has been held Moreover in the assessment completed under section 143(3) for the assessment year 1992-93, the assessing officer had already accepted the accounts relating to the said 15 flats and there being no material evidence found during the course of search; it was beyond the power of assessing officer to review the position already accepted.”

17. In the case of Dr. C. Balakrishnan Nair & Anr. v. CIT & Anr. (1999) 237 ITR 70 (Ker), the Hon’ble Kerala High Court has held that there was no violation of the provisions of the Act because the documents relating to capital gains and the assessed claimed exemption in respect of it under section 54. Without any violation of Income Tax Act the Respondents had no jurisdiction to invoke section 158BC. Accordingly the notice was quashed and the respondents were prohibited from invoking the sections under Chapter XIV-B of the Act in the said Act.

18. In the case of Shaw Wallace & Co. Ltd. v. CIT (1999) 238 ITR 13 (Cal), similar view has been expressed by the Hon’ble High Court that where the regular returns have been filed and the assessments on the basis of regular returns have been made, then the assessing officer is not empowered to review those regular returns while completing assessments under section 158BC under Chapter XIV-B.

19. In the case of L.R. Gupta v. Union of India (1992) 194 ITR 32 (Del), wherein it has held that an assessed is under no obligation to disclose in his return of income all the monies which are received by him, which do not partake the character of income or income liable to tax. If an assessed receives admittedly a gift from a relation or earns agricultural income which is not subject to tax, then he would not be liable to show the receipt of that money in his income-tax return. Non-disclosure of the same would not aITRact the provisions of section 132(1) (c). It has been further observed by the Hon’ble Delhi High Court that if the department became aware that those receipts, not shown by assessed, are taxable in character, then department can invoke the provisions of section 148, but no action can be taken under section 132(1) (c).

20. Here in the instant case there may be that some of the entries have not been made by assessed in regular books of accounts, but those entries can be held that they may not partake the character of taxable income. And the meaning of undisclosed income was given with reference to section 132(1) (c), therefore, we are of the view that same can be applied with reference to Chapter XIV-B. Accordingly we are of the view that the view of ours find fortified by the aforesaid decision of the Hon’ble Delhi High Court, because the assessed has submitted in his reply before the assessing officer that some of the entries are not made because a consolidated entry has been made after adjusting both of the entries i.e., purchase of shares and sale of shares, but that do not have the charter of any taxable income.

21. Further as we have already discussed in detail that neither the assessing officer, nor Commissioner (Appeals) has brought any material on record that which part of the income was not disclosed by assessed while filing the return of income or which portion of loss claimed by the assessed in the regular returns, wa:s not genuine. Merely presuming that assessed must have booked bogus losses to reduce its profitability, in our considered view, cannot be approved either on the facts of the present case or in the eyes of law. Various High Courts and even the Supreme Court has settled the issue that no addition can be made on presumption basis. If the assessing officer wanted to disallow the claim of the assessed claimed in the regular returns, then some material has to be brought on record that these transactions were ingenuine. The transactions made with various parties were proved by the assessed; confirmations of all the parties were filed; particulars of their income-tax, along with their filing of returns were furnished. Even in some of the cases the copies of assessment orders for the same year, in which the transactions were entered, were filed before the lower authorities, which they failed to consider.

22. Therefore, in view of these facts and circumstances and in view of the decisions already taken, we hold that there was no material with the assessing officer to disallow the claim of loss claimed by the assessed while filing its regular returns of income, because there being no material evidence found during the search and, therefore, it was beyond the power of the assessing officer to review the position already accepted while passing the assessments under section 143(3) on the basis of regular returns filed in due course of time. Accordingly we delete all the additions made by the assessing officer in the block period.

23. Since we have deleted the entire additions because of all the transactions were duly entered by the assessed in its books of accounts and the returns for the relevant assessment years were filed before the date of search and even the assessments of those years were also completed by the respective assessing officers. We have also discussed above regarding the scope of Chapter XIV-B to dispose off the present appeal regarding the undisclosed income, therefore, we refrain ourselves from expressing our view on the other aspects argued by the learned authorised representative or the lower authorities. This covers ground Nos. 1 to 13.

24. Ground Nos. 14, 15, 17 and 18 are general in nature, which does not require any adjudication upon.

25. The remaining ground, i.e., ground No. 16 is against the sustenance of charging of surcharge on the assessed income for the block period.

26. The assessing officer while computing the income-tax has also levied surcharge at 16 per cent. The Commissioner (Appeals) also confirmed the order of the assessing officer.

27. After hearing the learned authorised representative and considering the material on record, we find that assessed deserves to succeed in this ground also. The identical issue has been discussed by the Calcutta Bench in the case of Principal Officer, Builcon Towers (P) Ltd. v. Asstt. CIT (2000) 113 Taxman 74 (Cal)(Mag), wherein it has been held that “Chapter XIV-B consisting of sections 158B to 158BH, was inserted by the Finance Act, 1995 with effect from l-7-1995 and section 113 was also simultaneously introduced by the Finance Act, 1995 with effect from l-7-1995. Since the tax is specified in sub-section (2) of section 158BA read with section 113, viz., at the rate of 60 per cent, there was no question of increasing the same by surcharge as per the Finance Act, 1996. In the Finance Act, 1995, in so far as section 113 is concerned, there is no provision for charging surcharge on income-tax as per Part-I of the First Schedule. Another reason is that para “E” of Part-I of the First Schedule to the Finance (No. 2) Act, 1996 does not contain any reference of section 113 in the provisions regarding surcharge of income-tax. The provisions contained in Chapter XIV-B are applicable in respect of searches initiated after 30-6-1995. For completion of block assessment in a search case, section 158BE of this Chapter has laid down a time-limit of one year from the end of the month in which the last of the authorisations for search under section 132 was executed. Cases can be envisaged in which a search was conducted, say, in July, 1995 and the assessment of undisclosed income was completed, say, in March, 1996. Since the provisions of the Finance (No. 2) Act, 1996 came into force with effect from l-4-1996, the rate schedule as given in Part-I of the First Schedule to this Act cannot be invoked for levying surcharge over and above income-tax calculated at the rate of 60 per cent while completing a search assessment in the month of March, 1996. In respect of the search conducted in the month of July, 1995, the assessing officer had the power of delaying the assessment till the end of July, 1996 by which time the provisions of the Finance (No. 2) Act had come into force. However, the levy of surcharge could not be dependent on the whims of the assessing officer in completing the assessment early or towards the fag end of the prescribed time-limit. Had he completed the assessment in March, 1995, he could not have levied surcharge, since the rate schedule given in PartI of the First Schedule to the Finance Act, 1995 did not contain any provision authorising the levy of surcharge on income-tax computed as per the provisions of section 113. Merely because he delays the completion of assessment till July, 1996, the assessed cannot be subjected to a higher burden of tax than what he would have been liable to pay, had the assessment been completed before l-4-1996.

Further, according to the definition of ‘tax’ under section 2(43), it includes ‘incometax’ and ‘super tax’, but section 158BA read with section 113 refers to ‘tax’ only. Surcharge is neither referred to in section 2(43) nor in section 113. It also appears that by the provision income-tax is not to be increased by surcharge as it is evident form the heading surcharge of income-tax wherein only section 112 is mentioned. In other words, the charge in provision in the First Schedule Part-I pertaining to surcharge of income-tax does not include section 113. By looking at the Finance Act only while tax is charged under the Act, even otherwise surcharge was not payable up to the assessment year 1995-96.

In the light of above decision and by keeping in mind the ratio laid down by the Supreme Court in Collector, Land Acquisition v. Mst. Katiji & Ors. (1987) 167 ITR 471 (SC). in the instant case, surcharge was not applicable. In other words, levy of surcharge in the case of block assessment of a domestic company was not imposable.”

28. Therefore, in view of the precedence and there being no contrary decision, we delete the addition made on account of charging of surcharge.

29. In the result, the appeal of the assessed is allowed.

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H.B. Stockholdings Ltd. vs Joint Cit on 5 August, 2002

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