Whether if assessee has sums of carry-forward losses and unabsorbed depreciation which are relatable to block period, same is to be set off against undisclosed income determined in block assessment - YES: HC

THE question before the Bench is - Whether if an assessee has sums of carry-forward losses and unabsorbed deprecitaion which are relatable to the block period, the same is to be set off against undisclosed income determined in block assessment. And the answer is YES.

Facts of the case

The assessee is a dealer in machinery relating to bore-well. A search was conducted and a block assessment was done. During the assessment, the AO imposed certain amount of tax, upon the undisclosed income. Aggrieved, the assessee approached the Settlement Commission under Section 245D. The undisclosed income for the block period was determinded at Rs.1,36,52,701/- and a tax at 60% was imposed, aggregating to Rs.81,91,620.

On appeal, the Counsel for the assessee contended that the AO disallowed the accumulated losses and carried forward depreciations and also the provision u/s 245D was attracted only when there existed the unabsorbed losses or carried forward depreciation, which had spilled over beyond the block period, and not otherwise. Whereas, the DR contended that Secretary of the settlement commission was entitled to reject the claim, if the disclosures made by the assessee were not to its satisfaction, thus accordingly the application was entertained and a detailed reasoned order was passed. He further submitted that the order passed by the Secretary of the settlement commission, was in tune with the provision with Chapter XIV-B.

Having heard the parties, the HC held that,

++ 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; A perusal of this indicates that, if an assessee, who has been subjected to search, has any unabsorbed loss or carried forward depreciation, obviously meaning the one which has spilled over the block period, it shall not be available to be adjusted or set off against the undisclosed income. Even while denying such a facility, the Act preserved such unabsorbed loss or carried forward depreciation, to be adjusted in the regular assessments;

++ in this case, is not clear as to whether there existed any unabsorbed loss or carried forward depreciation, that spilled over the block period of the writ petitioner. If there exists any such components, they are not liable to be adjusted. If, on the other hand, the losses or depreciations are those which are referable to the block period, they are liable to be worked out, as though it is a regular assessment which, in fact, is a mandate under Section 158BH of the Act. With this clarification, we dispose of the writ petition directing that the consequential order shall be passed keeping in view the aspects pointed out by us.