SRI.P.MOHAMMED V. THE COMMISSIONER OF INCOME TAX

WA/2809/2009

AI Insights

The case involves two writ appeals arising from a common judgment concerning the tax assessment of P. Mohammed alias Manu, a partner in a firm, following a search operation. The appeals addressed the deductibility of certain losses and interest while computing the undisclosed income for the block period ending on 01.02.1996. The Settlement Commission had allowed the deductions, which the department challenged. The Single Judge of the High Court upheld the Commission's decision regarding the interest but not the house property loss, leading to appeals by both parties. The Division Bench of the High Court, referencing a Supreme Court decision, reversed the Single Judge's decision, allowing the deductions.

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 755828 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 25-10-2013
• Assessment Year: misc
• Other Referred Cases: E.K.Lingamurthy and another v. Settlement Commissioner (IT and WT) and another (SC) (2009) 314 ITR 305(SC)
• Laws Referred To: Income Tax Act
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: JOSE JOSEPH
• Assessee Lawyers: P BALAKRISHNAN
• Keywords: Block period; Capital Gains; House property loss; Interest on borrowings; Undisclosed income
• Section: 158BB(4)

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT: THE HON'BLE THE CHIEF JUSTICE DR. MANJULA CHELLUR & THE HONOURABLE MR.JUSTICE A.M.SHAFFIQUE FRIDAY, THE 25TH DAY OF OCTOBER 2013/3RD KARTHIKA, 1935 WA.No. 2809 of 2009 ( ) IN OP.14856/2002 ------------------------------------------ AGAINST THE JUDGMENT IN OP 14856/2002 of HIGH COURT OF KERALA DATED 29-07-2009 APPELLANT(S)/2ND RESPONDENT: ------------------------------------------------------ P. MOHAMMED ALIAS MANU, PALANTHODI HOUSE, KARUVAMBARAM, MANJERI MALAPPURAM DISTRICT. BY ADV. SRI.P.BALAKRISHNAN (E) RESPONDENT(S): --------------------- 1. THE COMMISSIONER OF INCOME TAX, CALICUT. 2. SETTLEMENT COMMISSION (IT & WT), ADDITIONAL BENCH - 488 - 489, ANNASALAI CHENNAI - 600 035. R1 & R2 BY ADV. SRI.JOSE JOSEPH, SC, FOR INCOME TAX THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 25-10-2013,ALONG WITH W.A.NO.349/2010 THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: dlk WA.No. 2809 of 2009 ( ) IN OP.14856/2002 APPENDIX APPELLANT'S ANNEXURES: ANNEXURE A:- TRUE COPY OF O.P.14856/2002(R) ALONG WITH EXHIBITS. ANNEXURE B:- TRUE COPY OF THE COUNTER AFFIDAVIT DATED 17TH NOVEMBER, 2002. RESPONDENTS ANNEXURES : NIL //TRUE COPY// P.A. TO JUDGE. dlk MANJULA CHELLUR,C.J. & A.M.SHAFFIQUE, J. = = = = = = = = = = = = = = = = Writ Appeal Nos.2809 of 2009 & 349 of 2010 = = = = = = = = = = = = = = = = = = = = = Dated this the 25 th day of October, 2013 JUDGMENT Manjula Chellur,CJ These two appeals arise out of common judgment of the learned Single Judge dated 29.07.2009 in O.P.No.14856 of 2002. W.A.No.2809 of 2009 is an appeal filed by the party assessee and W.A.No.349 of 2010 is an appeal filed by the Revenue. 2. The undisputed facts in the present appeals are as under:- 3. The appellant assessee and the wife were partners of a firm known as M/s.Century Complex at Manjeri. There was a search of the premises of the appellant on 01.02.1996. The firm had filed its returns of income for the assessment years 1993-94 to 1995-96. The appellant-assessee sought for settling the tax pertaining to the block period before the Settlement Commission, that is, block period ending with 01.02.1996. The Writ Appeal Nos.2809 of 2009 & 349 of 2010 2 Settlement Commission, while considering income of the house property and the capital gains on sale of Century Complex at Manjeri, has taken into account the sale price apart from brokerage as well as index cost of land appearing in the document. Ultimately the long term capital gains was arrived at `22,54,446/-. The applicant had sought reduction of losses under two categories under the head of house property. Loss from the house property carried forward amounting to `5,15,389/- and interest paid on borrowings for previous years that is `8,20,028/-. So far as brokerage is concerned whether it is excessive or not, it is not the subject matter of dispute before us. 4. After considering the stand of the applicant as well as the department, ultimately the net capital gains was arrived at `59,57,984/-. The Settlement Commission entirely agreed with the claim of the applicant in respect of set off of house property loss carried forward and as well as interest paid on borrowals that is `5,15,389/- and `8,20,058/- respectively. Department challenged the said order of the Settlement Commission before Writ Appeal Nos.2809 of 2009 & 349 of 2010 3 the learned Single Judge, though learned Single Judge confirmed the opinion of the Settlement Commission, so far as interest paid on borrowers, did not agree with the settlement commission so far as allowing deduction of `5,15,389/- opining that there is a clear bar against granting of carried forward loss, except in the case of regular assessment under Section 158BB(4) of the Act. 5. Aggrieved by the said judgment both the party appellant and the department are before us as stated above. According to the learned counsel representing the appellant assessee, if loss is brought forward pertaining to the block period itself which was initially not reflected in the regular assessment, he is entitled to seek benefit of such loss pertaining to the income computed after the search, that is, determination of undisclosed income. In other words, according to him, as long as it forms part of the undisclosed income for the block period, he is entitled to claim such losses brought forward. He places reliance on the reported decision of the Apex Court in E.K.Lingamurthy and another v. Settlement Commissioner (IT and WT) and Writ Appeal Nos.2809 of 2009 & 349 of 2010 4 another (SC) (2009) 314 ITR 305(SC). The relevant portion of the judgment is as under:- “7. 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 up to 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. Writ Appeal Nos.2809 of 2009 & 349 of 2010 5 8. 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 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 of inter se losses and depreciation accruing in any of the previous years in the block period against the income returned/assessed in any other previous year in the block period.” 6. Reading of the above judgment and the interpretation given to Section 158BB(4) read with Explanation (a) thereto, we are of the opinion, the learned Single Judge was not justified in disallowing the benefit granted to the assessee by the Settlement Commission so far as losses brought forward pertaining to the house property that is `5,15,389/-. In the light of observation of the Apex Court pertaining to Section 158BB(4) read with Explanation (a) how the loss brought forward could be Writ Appeal Nos.2809 of 2009 & 349 of 2010 6 considered while determining the undisclosed income and the benefit thereunder is in accordance with the procedure under the Act. So far as the interest paid on borrowals, it is also justified. Therefore, the appeal of the department fails and appeal of the party assessee deserves to be allowed. Accordingly Writ Appeal No.2809 of 2009 is allowed and Writ Appeal No.349 of 2010 is dismissed. MANJULA CHELLUR, CHIEF JUSTICE A.M.SHAFFIQUE, JUDGE. sj 25/10 "