IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.382-383 OF 2009 (Arising out of S.L.P.(C) Nos.19393-19394/2007)

E.K. Lingamurthy & Anr. ...Appellant(s)

Versus

Settlement Commissioner (IT&WT) & Anr. ...Respondent(s)

O R D E R

Leave granted.

In these appeals, we are required to consider the scope of Section 158BB(4)

of Chapter XIV-B of the Income Tax Act, 1961 (for short, 1961 Act).   

We  quote  hereinbelow  Section  158BB,  which  refers  to  'Computation  of

undisclosed income of a block period':

“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 Chapter IV, on the basis of evidence found as a result of search or requisition of books of account  or  documents  and  such  other  materials  or  information  as  are available with Assessing Officer, 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, on the basis of such assessments;

(b)  where  returns  of  income have  been filed  under section  139  or section 147 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

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no return of income has been filed, as nil;

(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 sub-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.

Explanation: For the purposes of determination of undisclosed income,--

(a)   the  total  income or  loss  of  each  previous  year  shall,  for  the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of Chapter IV without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32;

(b) xxx xxx  xxx

(c) xxx xxx xxx

(2) & (3) xxx xxx

(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.”

In these Civil Appeals, we are concerned with the block period commencing

from 1.4.1986 to 11.10.1996, when the search took place.

It is the case of the appellants-assessee that there is a conceptual difference

between current losses and carried forward losses.  Similarly, assessee contends that

there  a  conceptual  difference  between  current  depreciation  and  carried  forward

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unabsorbed depreciation.  It is the case of the assessee that Explanation (a) to Section

158BB does not rule out current year's losses or current year's depreciation;  it only

rules out the brought forward losses or unabsorbed depreciation under Section 32(2).

According  to  the  appellant,  this  difference  is  lost  sight  of  by  the  Settlement

Commission in its impugned judgment.

In order to answer the contention raised on behalf of the assessee, one has

to examine the scheme of Section 158BB of the 1961 Act.  It is not in controversy that

Chapter XIV-B constitutes a Code by itself.   

In  this  case,  we  are  concerned  with  the  computation  of  “undisclosed

income”  under  Section  158BB  of  the  Act.   Section  158BB,  inter  alia,  states  that

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 Chapter IV.  “Total income” is defined in Section 2(45) to mean the

total amount of income referred to in section 5, computed in the manner laid down in

the Act.  In other words, Chapter XIV does not rule out Chapter IV of the Act in the

matter  of  computation  of  undisclosed  income under  Chapter  XIV-B.   It  may  be

mentioned that ordinarily, in the case of regular assessment, the unit of assessment is

one year consisting of twelve months whereas in the case of block assessment, the unit

of  assessment  consists  of  ten  previous  years  and  the  period  upto  the  date  of  the

search.  Section 158BB provides for aggregation of income/loss of each previous year

comprised in the block period.  The block period assessment under Chapter XIV-B is

in addition to regular assessment.   

Analysing Section 158BB(4) read with Explanation (a) thereto, one finds

that only brought forward losses of the past years under Chapter VI and unabsorbed

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depreciation  under  Section  32(2) are  to  be  excluded  while  aggregating  the  total

income or loss of each previous year in the block period but set off of the loss suffered

in any of the previous year in the block period against the income assessed in other

previous years in the block period is not prohibited.  In our view, the Settlement

Commission had erred in disallowing the application of the assessee for set off  of

inter se losses and depreciation accruing in any of the previous year in the block

period against the income returned/assessed in any other previous year in the block

period.

For the aforestated reasons,  we set aside the impugned judgment of  the

High Court as well as the decision of the Settlement Commission and we remit the

matter to the Settlement Commission for fresh computation of the undisclosed income

under Section 158BB of the Income Tax Act, 1961 for the block period in question.

Civil Appeals are allowed accordingly, with no order as to costs.

                         ...................J.               (S.H. KAPADIA)

                        ...................J.

                                       (AFTAB ALAM) New Delhi, January 22, 2009.

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