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Smart Summary

Factual and Procedural Background

The present appeal concerns the assessment year 2004-05 and arises from the decision of the Income Tax Appellate Tribunal dated 15th February, 2013. The appellant-assessee challenged the reassessment proceedings conducted under Section 153A of the Income-tax Act, 1961, following a search conducted on 18th January, 2006 and subsequent dates. The appellant disputed the validity of certain additions made to the book profit and the denial of set off of book losses and unabsorbed depreciation from earlier years under Section 115JB of the Act. The appeal was filed under Section 260A of the Act, seeking to raise substantial questions of law relating to the scope and jurisdiction of assessments under Section 153A and the interpretation of provisions relating to set off of losses under Section 115JB.

Legal Issues Presented

  1. Whether the Tribunal erred in law and on facts by not holding that re-computation of book profit, independent of incriminating material found during the search, in an order passed under Section 153A was without jurisdiction and outside the scope of those proceedings?
  2. Whether the Tribunal erred in upholding the assessing officer’s denial of set off of book loss and unabsorbed depreciation relatable to earlier assessment years under clause (iii) of Explanation 1 to Section 115JB?
  3. Whether the Tribunal misconstrued the provisions of Section 115JB, particularly clause (iii) of Explanation 1, in upholding the denial of set off of book loss and unabsorbed depreciation from earlier years?
  4. Whether the findings of the Tribunal were perverse and contrary to the record on the facts and circumstances?
  5. Whether the Tribunal’s conclusion was such that no reasonable person correctly informed of the law would arrive at the same?

Arguments of the Parties

The opinion does not contain a detailed account of the parties' legal arguments.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Commissioner Of Income Tax-Vii v. Chetan Das Lachman Das [2012] 211 Taxman 61/25 taxmann.com 227 Clarification of the scope and purpose of Section 153A, emphasizing that additions under Section 153A need not be strictly limited to incriminating material found during search; assessment under Section 153A is a single comprehensive assessment for six years and overrides normal assessment procedures. The Court relied on this precedent to reject the appellant’s argument that additions must be strictly tied to incriminating material found during search, affirming the validity of reassessment under Section 153A.
CIT v. Anil Kumar Bhatia [2012] 211 Taxman 453/24 taxmann.com 98 (Delhi) Explanation of the non-obstante clause in Section 153A and the replacement of block assessment procedures with a single assessment order covering undisclosed income for six years. The Court used this precedent to support the interpretation that Section 153A overrides normal assessment procedures and that reassessments under Section 153A are comprehensive and not subject to the restrictions of Sections 147, 148, and 151.

Court's Reasoning and Analysis

The Court examined the scope of Section 153A of the Income-tax Act, noting that the Assessing Officer’s powers under this section are broad and override normal assessment procedures. The Court held that additions under Section 153A need not be strictly limited to incriminating material found during the search, as the provision contemplates a consolidated assessment for six preceding years. The Court emphasized that once proceedings under Section 153A are initiated, multiple assessments are not permissible, and the total income for the relevant years must be assessed comprehensively.

Regarding the denial of set off of book losses and unabsorbed depreciation under Section 115JB, the Court analyzed the relevant statutory provision—clause (iii) of Explanation 1—and the factual computation of book losses and depreciation carried forward from earlier years. The Court found that the appellant’s contention to re-compute brought forward losses ignoring prior adjustments was contrary to the clear language of the provision. The lower authorities and the Tribunal correctly applied the provision by allowing set off only of the lesser amount between brought forward loss and unabsorbed depreciation.

The Court further noted that the appellant had not raised the jurisdictional issue under Section 153A at earlier stages of the proceedings, and rejected the contention that it could be raised at any time, finding no merit in this submission.

Holding and Implications

The appeal is dismissed at the admission stage.

The Court upheld the validity of the reassessment under Section 153A as a comprehensive assessment not restricted to incriminating material found during search. It also affirmed the correct application of clause (iii) of Explanation 1 to Section 115JB regarding set off of book losses and unabsorbed depreciation. The decision results in the final confirmation of the Tribunal’s order against the appellant-assessee, with no costs awarded. No new precedent was established beyond the application of existing legal principles to the facts of the case.

    Filatex India Ltd. v. Commissioner of Income-tax-IV

    JUDGMENT

    1. The present appeal filed by the appellant-assessee under Section 260A of the Income-tax Act, 1961 (Act, in short) relates to the assessment year 2004-05. In paragraph 3.1, the appellant-assessee has raised following substantial questions of law, impugning the decision of the Income Tax Appellate Tribunal dated 15th February, 2013:

  • "(i) Whether the Tribunal erred on facts and in law in not holding that re-computation of book profit, de-hors any material found during the course of search, in the order passed under section 153A of the Act was without jurisdiction, being outside the scope of proceedings under that section?
  • (ii) Whether on the facts and circumstances of the case, the Tribunal erred in law in upholding the action of the assessing Officer in denying set off of book loss unabsorbed depreciation relatable to earlier assessment year(s) in terms of clause (iii) of Explanation 1 to section 115JB of the Act?
  • (iii) Whether the Tribunal misconstrued the provisions of section 115JB of the Act particularly clause (iii) of Explanation 1 thereof, while upholding denial of set off of book loss/unabsorbed depreciation relatable to earlier assessment years?
  • (iv) Whether on the facts and in the circumstances of the case, the findings arrived at by the Tribunal are perverse and contrary to record?
  • (v) Whether on the facts and in the circumstances of the case, the conclusion arrived at the Tribunal is such that no reasonable person correctly informed of the provisions of law would come to such a conclusion?"
  • 2. On the first question, we note that the Assessing Officer, in the proceedings under section 153A of the Act, had made several additions, relying upon the incriminating material found in the course of search, which was conducted on 18th January, 2006 and subsequent dates. A perusal of the impugned order by the Tribunal would disclose that incriminating material including statement of Sanjay Agrawal, GM (Marketing) have resulted in additions, which have been upheld. It is not the case of the appellant-assessee that initiation of proceedings under Section 153A was bad or unwarranted in law as no incriminating material was found during the search. The contention raised by the appellant-assessee is that the addition, which is the subject matter of questions No. (ii) and (iii), was/is not justified in the assessment order under section 153A, as no incriminating material was found concerning the addition under Section 115JB of the Act. The said argument has no substance and has to be rejected. Under Section 153A of the Act, the additions need not be restricted or limited to the incriminating material, which was found during the course of search. There cannot be multiple assessments, once Section 153A of the Act is applicable. Section 153A(1) postulates one assessment, computing the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which search was conducted or requisition was made. Total income is assessed or reassessed in the order under section 153A of the Act and the Section applies notwithstanding sections 139, 147, 148, 149, 151 and 153 of the Act.

    3. Learned counsel for the appellant-assessee has relied on the decision of this Court in Commissioner Of Income Tax-Vii v. Chetan Das Lachman Das [2012] 211 Taxman 61/25 taxmann.com 227 . The said decision notices insertion of Section 153A by Finance Act, 2003, its purpose and object, and the earlier proceedings for block assessment under Chapter XIVB, the difficulties and the legal issues which had arisen on the difference between regular assessment and block assessment. It is in this context that in the case of Chetan Das Lachman Das (supra), the Division Bench, [to which one of us (Sanjiv Khanna, J) was a party], has observed that Section 153A(l)(b) provides for assessment or re-assessment of the total income of six assessment years immediately preceding the assessment year relevant to the previous year in which the search took place. It was emphasized that there is no condition in this Section that the additions should be strictly made on the basis of evidence found during the course of the search or other post search material or information available with the Assessing Officer, related to the evidence found. Subsequent observation to the effect that the assessment under section 153A should not be arbitrary or made without any relevance or nexus with the seized material, is basically clarificatory that the assessment under Section 153A emanates and starts on the foundation of the search, which is the jurisdictional precondition. The additions cannot and should not be arbitrary. The aforesaid legal position becomes clear from the observations in CIT v. Anil Kumar Bhatia [2012] 211 Taxman 453/24 taxmann.com 98 (Delhi) wherein it has been elucidated that Section 153A starts as a non-obstante clause and therefore overrides the normal assessment procedures covered by Sections 139, 147, 148 etc. of the Act and that Section 153A is a special provision in respect of the searches made after 31st May, 2003. Prior to that, in cases of search and seizure, procedures and provisions of Chapter XIV-B were applicable, which provides for passing of an block assessment order, in respect of 10/6 assessment years. However under Section 153A, a single assessment order has to be passed for the undisclosed income. The block assessment order was in addition to the normal assessment, as was clarified by Explanation below Section 158BA(2). However, with the introduction of Section 153A to 153C, the block assessment order procedure was given go by and the dual procedure and the technicalities removed, with simplified procedure under Section 153A, Under Section 153A the Assessing Officer, exercises normal assessment powers. It was in this context, it was observed thus:

    "A question may arise as to how this is sought to be achieved where an assessment order had already been passed in respect of all or any of those six assessment years, either under Section 143(l)(a) or Section 143(3) of the Act If such an order is already in existence, having obviously been passed prior to the initiation of the search/requisition, the Assessing Officer is empowered to reopen those proceedings and reassess the total income, taking note of the undisclosed income, if any, unearthed during the search. For this purpose, the fetters imposed upon the Assessing Officer by the strict procedure to assume jurisdiction to reopen the assessment under Sections 147 and 148, have been removed by the non obstante clause with which sub-section (1) of Section 153A opens.

    The position thus emerging is that where assessment or reassessment proceedings are pending completion when the search is initiated or requisition is made, they will abate making way for the Assessing Officer to determine the total income of the assessee in which the undisclosed income would also be included, but in cases where the assessment or reassessment proceedings have already been completed and assessment orders have been passed determining the assessee's total income and such orders are subsisting at the time when the search or the requisition is made, there is no question of any abatement since no proceedings are pending. In this latter situation, the Assessing Officer will reopen the assessments or reassessments already made (without having the need to follow the strict provisions or complying with the strict conditions of Sections 147, 148 and 151) and determine the total income of the assessee. Such determination in the orders passed under, Section 153A would be similar to the orders passed in any reassessment, where the total income determined in the original assessment order and the income that escaped assessment are clubbed together and assessed as the total income. In such a case, to reiterate, there is no question of any abatement of the earlier proceedings for the simple reason that no proceedings for assessment or reassessment were pending since they had already culminated in assessment or reassessment orders when the search was initiated or the requisition was made."

    4. The first question, we notice was not raised by the appellant before the Assessing Officer, CIT (Appeals) and before the Tribunal. The appellant claims that the contention being legal can be raised at any stage. We have examined Section 153A of the Act and find that the submission/contention has no merit.

    5. The second issue also does not merit consideration as the answer is crystal clear and obvious. To appreciate the contention, we would like to reproduce the factual chart given by the appellant in the appeal:—

    (1) (2) (3) (4) (5) (6)
    Previous Year Income/ (Loss) before Dep Depreciation Total Profit/(Loss) Accumulatd loss Bifurcation For Set off Balance Carried forward
    31.03.2000 Book Loos - Book Loos (465)
    (465) (542) (1007) Dep - Dep (542)
    31.03.2001 Book Loss - Book Loss (910)
    (445) (532) (977) (1984) Dep - Dep (1074)
    31.03.2002 Book Loss - Boook Loss (910)
    126 (544) (418) (2402) Dep - Dep (1492)
    31.03.2003 Book Loss - Book Loss (910)
    987 (574) 413 (1989) Dep - Dep (1079)
    31.03.2004          
    1800 (617) 1191** (806) Set off (910) -

    As assessed by the assessing officer in the subject assessment year.

    6. In the present appeal, we are concerned with the period ending 31st March, 2014 i.e. the Assessment Year 2004-05. In the last Assessment Year i.e. Assessment Year 2003-04 ending 31st March, 2003, the appellant-assessee had earned net book profit of Rs. 413 lakhs after setting off the said years depreciation of Rs. 574 lakhs. For the purpose of Section 115JB, the assessee was allowed to set off the book profit of Rs. 413 lakhs from the carry forward book losses of Rs. 910 lakhs. In other words, the book loss was calculated and computed at Rs. 497 lakhs. This was in consonance with clause (iii) of Explanation 1 to Section 115JB of the Act, which reads as under:

    "(iii) the amount of loss brought forward or unabsorbed depreciation, whichever is less as per books of account.

    Explanation. — For the purposes of this clause,—

  • (a) The loss shall not include depreciation;
  • (b) the provisions of this clause shall not apply if the amount of loss brought forward or unabsorbed depreciation is nil;."
  • 7. To this extent, the appellant-assessee does not dispute the legal position. Learned counsel for the appellant submits that the aforesaid clause does not deal with the situation in the next year i.e. assessment year in question 2004-05. As per the stand, the appellant-assessee are entitled to re-work the brought forward book losses and depreciation, ignoring the adjustment and computation made in the last year. This is not acceptable and would be patently contrary to the language of clause (iii). It is illogical. As per the clause (iii), the brought forward losses or unabsorbed depreciation, whichever is less, is to be set off. In terms of the said clause, in the last Assessment Year 2003-04, book profit of Rs. 413 lakhs was set off from balance forward losses of Rs. 910 lakhs, giving a balance figure of Rs. 497 lakhs, which has been carried forward as unabsorbed loss. The applicable figure for this year would be Rs. 497 lakhs i.e. the available book loss and unexpired depreciation of Rs. 1079 lakhs. The figure of Rs. 497 lakhs being the lower figure in terms of clause (iii) would be available to the assessee and adjusted from the book profit of Rs. 1191 lakhs of this year i.e. Assessment Year 2004-05. This is what has been computed and allowed by the Tribunal. We, therefore, do not think any substantial question of law arises for consideration on the second aspect.

    8. The appeal is accordingly dismissed at the admission stage. No costs.

    JYOTI

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    Filatex India Ltd. v. Commissioner of Income-tax-IV
    (Jul 14, 2014)