IN THE HIGH COURT OF KERALA AT ERNAKULAM
ITA.No. 265 of 2002()
1. THE COMMISSIONER OF INCOME TAX,
... Petitioner
Vs
1. SHRI.K.P.CHANDRADASAN, CALICUT.
... Respondent
For Petitioner :SRI.P.K.R.MENON(SR.),SR.COUNSEL FOR IT
For Respondent :SRI.K.A.SALIL NARAYANAN
The Hon'ble MR. Justice C.N.RAMACHANDRAN NAIR
The Hon'ble MR. Justice HARUN-UL-RASHID
Dated :02/12/2008
O R D E R
C .N. RAMACHANDRAN NAIR &
HARUN-UL-RASHID, JJ.
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I.T.A. No.265 of 2002
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Dated this the 2nd day of December, 2008
JUDGMENT
Ramachandran Nair,J
The departmental appeal filed under Section 260A of the
Income Tax Act arises from the order of the Income Tax Appellate
Tribunal disposing of an appeal from a block assessment made
under Section 158BC of the Income Tax Act. The question arising
for consideration is whether the assessee was entitled to exclusion
of additional income returned for the assessment years 1995-96
and 1996-97 and the income in respect of which tax was deducted
at source for the assessment year 1997-98 in the computation of
income for the block period 01/04/1986 to 05/03/1997 under
Section 158BB of the Act. The assessment under Chapter XIV-B
was initiated pursuant to a search carried out on 05/03/1997 in the
premises of the assessee. As on the date of search, the assessee
had already filed return for the assessment year 1995-96.
However, subsequent to the date of search, the assess filed a
revised return on 06/03/1997 disclosing a further income of
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Rs.68,143/- for the said year. For the assessment year 1996-97,
though the time for filing return was over as on the date of search,
the assessee had not filed return. However, after the date of
search, the assessee filed regular return on 31/03/1997. Even
before the block assessment was taken up, the Assessing Officer
based on the revised return filed for the assessment year 1995-96
and the regular return filed for the assessment year 1996-97,
completed the assessments by issuing intimation under Section 143
(1)(a) of the Act. So far as assessment year 1997-98 is concerned,
since the search was on 05/03/1997, relevant previous year had not
expired and the time for filing return for the said assessment year
was also not over. In view of the completion of the assessment,
though after the search was made, the assessee claimed exclusion
of additional income offered in the revised return filed for the year
1995-96 and the income returned for the year 1996-97 from the
block assessment. So far as the assessment year 1997-98 is
concerned, the assessee claimed exclusion of the income on the
ground that by virtue of deduction of tax on contract payments,
such income was accounted, and therefore excludable from the
block period assessment.
2. The Assessing Officer, however, rejected the claim for
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the reason that revised return filed for the year 1995-96 and
original return filed beyond the due date for filing the return for the
year 1996-97 were not to be considered for the purpose of
exclusion of the income from the block assessment. So far as the
assessment year 1997-98 is concerned, the Assessing Officer took
the view that assessee has not written the books of accounts
including the contract receipts, out of which the estimated income
arises, and therefore, the assessee was not entitled to exclusion.
Accordingly, the Assessing Officer included the additional income
returned for the year 1995-96, the income return and assessed for
the year 1996-97 and the income in respect of TDS was made by
the awarders for the year 1997-98, in the block assessment made
under Section 158BC of the Act. The assessee succeeded in the two
levels of appeal before the first appellate authority and before the
Tribunal. This appeal is filed against the order of the Tribunal
confirming the order in first appeal.
3. We have heard learned standing counsel of the Income
Tax Department appearing for the appellant and learned counsel
appearing for the assessee.
4. Since computation of income for the purpose of block
assessment under Chapter XIV-B of the Act has to be done under
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Section 158BB, we have to refer the said section. For this purpose,
Section 158BB with relevant amendments is extracted below :-
Computation of undisclosed income of the block period.
Section 158BB : (1) The undisclosed income of the block
period shall be the aggregate of the total income of the previous
years falling within the block period computed, in accordance
with the provisions of this Act, on the basis of evidence found as
a result of search or requisition of books of account or other
documents and such other materials or information as are
available with the Assessing Officer and relatable to such
evidence, as reduced by the aggregate of the total income, or as
the case may be, as increased by the aggregate of the losses of
such previous years, determined,-
(a) where assessments under section 143 or section 144
or section 147 have been concluded prior to the date of
commencement of the search or the date of requisition, on
the basis of such assessments;
(b) where returns of income have been filed under
section 139 or in response to a notice issued under sub-
section (1) of section 142 or section 148 but assessments
have not been made till the date of search or requisition,
on the basis of the income disclosed in such returns;
(c) where the due date for filing a return of income has
expired, but no return of income has been filed,-
(A) on the basis of entries as recorded in the
books of account and other documents maintained
in the normal course on or before the date of the
search or requisition where such entries result in
computation of loss for any previous year falling in
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the block period; or
(B) on the basis of entries as recorded in the
books of account and other documents maintained
in the normal course on or before the date of the
search or requisition where such income does not
exceed the maximum amount not chargeable to
tax for any previous year falling in the block period;
(ca) where the due date for filing a return of income has
expired, but no return of income has been filed, as nil, in
cases not falling under clause(c);
(d) where the previous year has not ended or the date
of filing the return of income under sub-section(1) of
section 139 has not expired, on the basis of entries relating
to such income or transactions as recorded in the books of
account and other documents maintained in the normal
course on or before the date of the search or requisition
relating to such previous years;
(e) where any order of settlement has been made
under-section (4) of section 245D, on the basis of such
order;
(f) where an assessment of undisclosed income had
been made earlier under clause (c) of section 158BC, on
the basis of such assessment.
(2) In computing the undisclosed income of the block period,
the provisions of sections 68, 69, 69A and 69C shall, so far as
may be, apply and references to “financial year” in those
sections shall be construed as references to the relevant
previous year falling in the block period including the previous
year ending with the date of search or of the requisition.
(3) The burden of proving to the satisfaction of the Assessing
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Officer that any undisclosed income had already been disclosed
in any return of income filed by the assessee before the
commencement of search or of the requisition, as the case may
be, shall be on the assessee.
(4) For the purpose of assessment under this Chapter, losses
brought forward from the previous year under Chapter VI or
unabsorbed depreciation under sub-section (2) of Section 32
shall not be set off against the undisclosed income determined in
the block assessment under this Chapter, but may be carried
forward for being set off in the regular assessments.
5. The case of the revenue is that the income returned
through the revised return filed for the year 1995-96 and belated
return filed for the year 1996-97, after the date of search, cannot
be excluded in the computation of income for block period. Learned
counsel for the assessee, on the other hand, contended that once
assessments are made based on return filed under Clause (a) of the
above provision, such income so assessed is entitled to be
excluded. He has by referring to the decision of the Supreme Court
in Commissioner of Income Tax Vs. Max India Ltd., reported in
295 ITR 282, contended that the amendment to Clause (a) by
Finance Act 2002 with effect from 01/07/1994, which requires
completion of assessment prior to the date of commencement of
search, was not applicable because the amendment was introduced
retrospectively subsequent to regular assessments for these two
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years and block assessment after search.
6. Learned Standing Counsel on the other hand contended
that the amendment with retrospective effect binds the assessee.
He further contended that the retrospective amendment was only
clarificatory in nature and even without the amendment, the
position is such that exclusion in the computation of income from
block period under Section 158BB is possible in respect of income
assessed prior to the date of commencement of search.
7. On going through scheme of Section 158BB, we are of
the view that three classes of income are excluded in the
computation of income for the block period. The first one is the
income assessed and the second one is the income returned
through revised return filed by the assessee and the last one is the
income accounted by the assessee in any books of accounts or
other materials maintained by the assessee. It has to be noted that
the block period assessment under the main provision has to be
completed based on evidence and materials collected by the
Department in the course of search. The scheme of exclusion of
various items of income in the computation of income for block
period under Section 158BB is such that income either assessed or
returned for assessment or accounted by the assessee should not
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be assessed as income unearthed by the Department in the course
of search. Obviously, income assessed and covered by Clause (a)
are covered by assessment completed prior to the date of
commencement of search. The second category of income is the
income covered by returns or revised returns filed, which are
pending for assessments. Obviously, such returns should have
been filed prior to the date of commencement of search or allowed
to be filed after the date of search. The latter category is covered
because assessee can disclose income in the course of search and
avoid block assessment. Such return or revised return cannot be
filed after search for the purpose of exclusion from block period
assessment, it makes no difference whether the Assessing Officer
acted upon such regular returns or revised returns filed after
search.
8. In this particular case, it is on record that even the
regular return filed by the assessee for the year 1995-96 was
belated, and the revised return filed immediately after search was a
non-est one. In any case, by filing a revised return after search,
the assessee cannot seek exclusion of any income from block
assessment. So far as the assessment year 1996-97 is concerned,
the assessee admittedly did not filed return on due date but filed
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belated return after the date of search. Even though these returns
may be treated as filed under Section 139(4) of the Act, the
income returned thereunder cannot be excluded from the scope of
block assessment, as such returns are filed after the
commencement of the date of search.
(C.N. RAMACHANDRAN NAIR)
Judge
(HARUN-UL-RASHID)
Judge
jg/kk