THE COMMISSIONER OF INCOME TAX vs. K.P.CHANDRASENAN

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT : THE HONOURABLE MR. JUSTICE C.N.RAMACHANDRAN NAIR & THE HONOURABLE MR. JUSTICE HARUN-UL-RASHID TUESDAY, THE 2ND DECEMBER 2008 / 11TH AGRAHAYANA 1930 ITA.No. 265 of 2002() --------------------- ITA.2/COCH/2000 of I.T.A.TRIBUNAL,COCHIN BENCH .................... APPELLANT/APPELLANT --------------------------------------- THE COMMISSIONER OF INCOME TAX, CALICUT. BY ADV. SRI.P.K.R.MENON, SENIOR ADVOCATE SRI.GEORGE K. GEORGE, SC FOR IT RESPONDENT(S): RESPONDENT ------------------------- SHRI.K.P.CHANDRADASAN, CALICUT. ADV. SRI.K.A.SALIL NARAYANAN SRI.V.P.MOHADAS THIS INCOME TAX APPEAL HAVING BEEN FINALLY HEARD ON 02/12/2008 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING:

C .N. RAMACHANDRAN NAIR & HARUN-UL-RASHID, JJ. -------------------------------------------- I.T.A. No.265 of 2002 -------------------------------------------- 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

2 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

3 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

4 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

5 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

6 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

7 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

8 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

9 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