C I T vs. M/S AMRITSAR PROCESSORS P LTD.

ITA/535/2007HC Punjab & HaryanaPHHC01073243200706 April 2011Author: MR. JUSTICE ADARSH KUMAR GOEL,MR. JUSTICE AJAY KUMAR MITTAL8 pages
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What were the facts?

A search and seizure operation under Section 132(1) of the Income Tax Act, 1961, was conducted at the premises of M/s Amritsar Processors (P) Ltd. (the assessee) on January 16, 2001. The Assessing Officer (AO) completed the assessment on January 31, 2003, determining an undisclosed income of Rs. 12,00,000/- for the block period (April 1, 1990, to January 16, 2001). The AO disallowed a claim of loss amounting to Rs. 12,00,000/- and levied surcharge on the undisclosed income. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee's claim for loss and deleted the surcharge, holding that the proviso to Section 113 was prospective. The Income Tax Appellate Tribunal (Tribunal) upheld the CIT(A)'s order. The revenue appealed to the High Court.

What did the High Court hold?

The High Court held in favour of the Revenue on both issues. Regarding the first issue, the Court analyzed Section 158BB(4) of the Act, which states that losses brought forward from previous years under Chapter VI or unabsorbed depreciation under Section 32(2) shall not be set off against undisclosed income of the block assessment but can be carried forward. While the Supreme Court in E.K. Lingamurthy's case held that there is no prohibition for setting off losses incurred in any previous year falling within the block period against income assessed in other previous years within the block period, the High Court distinguished this by noting that the Supreme Court's ruling did not address the set-off of losses from subsequent years against income from earlier years within the block period. The High Court concluded that, in the absence of a specific provision, losses of subsequent years cannot be set off against income arising in prior years. Therefore, the undisclosed income of Rs. 8,54,947/- relating to assessment year 1992-93 could not be adjusted against losses arising from 1993-94 to 2000-01. For the second issue, the High Court relied on its own decision in CIT (Central) vs. M/s. Bansal Sweet House, which followed the Supreme Court's ruling in Suresh N. Gupta. It was held that the proviso to Section 113, inserted by the Finance Act, 2002, was curative and clarificatory, making it applicable to block assessments even where the search occurred before June 1, 2002. The surcharge was thus imposable. The appeal was allowed.

What were the issues?

The High Court had to decide two substantial questions of law: 1. Whether the Tribunal was correct in allowing the assessee's claim of loss of later years against the undisclosed income of Rs. 12 lacs determined for an earlier year within the block period, despite the loss not being disclosed in returns filed under Section 139. - **Revenue's contention:** Losses of subsequent years could not be set off against income of earlier years, even within the block period, as per normal provisions of the Act. The CIT(A) and Tribunal had not considered this aspect and mechanically followed a previous Tribunal decision. Reliance was placed on B.D.A vs. ACIT and E.K. Lingamurthy and another v. Settlement Commission. - **Assessee's contention:** Not recorded in the judgment. 2. Whether the Tribunal was correct in deleting the surcharge on tax worked out on the undisclosed income, on the grounds that the search took place prior to June 1, 2002, whereas the amendment to the proviso to Section 113 was effective from June 1, 2002. - **Revenue's contention:** The proviso to Section 113, inserted by the Finance Act, 2002, was curative in nature and applicable to block assessments even if the search occurred before June 1, 2002. Reliance was placed on the Supreme Court decision in Commissioner of Income Tax vs. Suresh N. Gupta. - **Assessee's contention:** Not recorded in the judgment.

Which sections of the Income-tax Act were involved?

Section 132(1),Section 139,Section 113,Section 158BB,Section 32(2),Section 158BC,Section 2(45)

AI-generated summary — verify with the full judgment below

-1- IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH Date of Decision: 6.4.2011 Commissioner of Income-tax ....Appellant. Versus M/s Amritsar Processors (P) Ltd. ...Respondent. CORAM:- HON'BLE MR. JUSTICE ADARSH KUMAR GOEL. HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. PRESENT: Mr. Sukant Gupta, Standing counsel for the appellant. None for the respondent. AJAY KUMAR MITTAL, J.

1.

The appeal was admitted by this Court vide order dated 18.8.2008 for consideration of the following substantial questions of law:- “(i) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in allowing the assessee's clam of loss of later years against the undisclosed income of Rs.12 lacs determined for an earlier year of block period, disregarding the fact that the loss was not disclosed in the returns filed u/s 139? (ii) Whether, on the facts and in the circumstances of the -2- case, the Tribunal was correct in law in deleting the surcharge on the tax worked out on the undisclosed income for the reason that search took place in the case prior to 01.06.2002, whereas the amendment in the proviso to Section 113

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