Income Tax Appellate Tribunal - Chennai
Sri Sakthi Crusher, Kangeyam vs Assessee
IN THE INCOME-TAX APPELLATE TRIBUNAL: D- BENCH: CHENNAI
(Before Shri Abraham P George and Shri George Mathan)
IT (SS) A No.217 Mds/2006
Block period 1-4-1990 to 12-10-2000
M/s Sri Sakthi Crusher, vs. The DCIT-I
S.F. No.397 Chennimalai Rd., Kangeyam. Central Cir.II,Coimbatore
(PAN AAGCS 2918C)
(Appellant) (Respondent)
Appellant by: Shri A. Arjunraj
Respondent by: Shri Omkareswar Chidra (CIT-DR)
ORDER
PER ABRAHAM P.GEORGE, ACCOUNTANT MEMBER--
This is an appeal filed by the assesse in which it has filed a concise set of grounds of appeal. Assessee has also filed four additional grounds alongwith a prayer for admission thereof. Such additional grounds will be considered after first dealing with the concise grounds raised in the appeal.
2. Ground No.6 of the concise ground specifically mentions that grounds earlier submitted could be disregarded and only the concise grounds filed are to be taken on record. Accordingly we deal with only the concise grounds raised by the assessee.
3. Ground No.1 of the concise ground is general in nature and does not call for any adjudications.
ITSS(A)217/Mds/2006
4. Ground No.2 of the concise ground is reproduced under:
"The CIT(A) has erred in reducing the losses as disclosed in the block return and determining the same as below and also treating the above losses at NIL.
"S.No. Assessment year Disallowance of interest to partners made in the computation statement
1. 1996-97 Rs.3,63,656
2. 1997-98 Rs.3,02,720
3. 1998-99 Rs.1,49,875"
5. As is clear from the above mentioned ground, there are two legs in the pleading. First is that the CIT(A) had reduced the losses in Asst. years 1996-97, 1997-98 and 1998-99 from what was disclosed by the assessee in the block return. The second leg of the pleading is that CIT(A) had treated the losses for the above mentioned assessment years as Nil, which effectively denied the assessee benefit of set off of such losses against income determined for the other years included in the block period.
6. Assessee is a partnership firm engaged in the production and sale of blue jelly metal. There was a search in its premises on 12-10-2000 whereupon books of account maintained were seized. After a number of notices and letters issued the assessee filed block return on 18-9-2002. For asst. year 1996-97 included in the block period, assessee has shown loss of Rs.4,63,285/-. The A.O made following disallowances to such returned income:
ITSS(A)217/Mds/2006 Depreciation Rs.3,54,629/-
Salary and interest Rs. 92,100/-
Interest payment to TIIC Rs. 66,981/-
Others Rs. 7,529/-
Rs.5,21,239/-
6. After the above disallowances total income for the asst. year came to Rs.57,954/-.Since the assessee had not filed any supporting evidence for the claim of expenses before the A.O and had only produced such details before the CIT(A), the latter sought a remand report from the A.O. The A.O accepted the claim of the assessee in respect of depreciation and interest payment. However, as regards salary and interest paid to partners, the A.O was of the opinion that this was not allowable for the relevant assessment year. The CIT(A), therefore, directed deletion of the disallowance of deduction of Rs.3,54,629/- and interest to TIIC Rs.66,981/- totaling to Rs.4,21,610/-. He also noted that on account of such deletion the undisclosed income for asst. year 1996-97 was a loss of Rs.3,63,656/- against loss of Rs.4,63,285/-
returned by the assessee. Nevertheless according to him, the undisclosed income had to be considered as Nil as per Sec.158BB(1)(c)(A) of the Act.
7. For Asst. year 1997-98 assessee had returned a loss of Rs.5,00,470/-. Here also the A.O, made certain disallowances which were as under:
Depreciation Rs. 4,11,378/-
Salary & Interest Rs. 1,97,750/-
Interest on TIIC loan Rs. 2,51,700
Rs. 8,60,820/-
ITSS(A)217/Mds/2006
Like for asst. year 1996-97, here also a remand report was obtained by the CIT(A). The A.O in such remand report accepted the claim of the assessee with regard to depreciation and interest on TIIC loan. However, for A.Y 1997-98 also, the A.O observed that salary and interest payment to partners were not allowable. The CIT(A), therefore, deleted the disallowance of Rs.6,63,078/- pertaining to depreciation and interest on TIIC loan but confirmed the disallowance of salary and interest to partners. This brought down lthe loss of Rs.5,00,470/- declared by the assessee to Rs.3,02,720/-. Though the CIT (A) noted this aspect, relying on Sec.158BB(1)(c)(A) of the Act, he again considered the undisclosed income for A.Y 1997-98 as Nil.
8. For A.Y 1998-99 assessee had in the block return shown loss of Rs.3,33,045/-. The same exercise as done in the preceding year was followed for Asst. year 1998-99 also. Against the original disallowances made by the A.O, in the remand report it was accepted that disallowances could be limited to interest and remuneration to working partners Rs.1,84,070/-. Disallowance to the extent of Rs.5,01,767/- was deleted based on the remand report. Effectively, as per the CIT(A) the total income for the relevant A.Y was a loss of Rs.1,49,875/- against loss of Rs.3,33,945/- shown by the assessee in the block return. However, again relying on sec. 158BB(1)(c)(A) of the Act, the CIT(A) held that the undisclosed income for the year would have to be taken as Nil.
9. Now before us the ld. A.R. submitted that the ld. CIT(A) while considering the undisclosed income for the years as 'Nil', against the loss clearly worked out by him effectively denied the assessee his rightful claim of set off of such losses against profit ITSS(A)217/Mds/2006 for the other years in the same block period In this connection reliance was placed on the decision of the Honorable Apex Court in the case of E.K Lingamurthy & Anr. Vs. Settlement Commission (314 ITR 305)(SC). According to the ld. A.R, Sec. 158BB worked on the principle of aggregation and vide sub-sec. (1) thereof aggregate of the total income of the previous years falling within the block period had to be considered and if in any of such year there was a loss it could not be ignored. Relying on cl. (a) of the Explanation to sub-sec.(1) of Sec.158BB, ld. Counsel argued that only brought forward losses under Chapter VI of the Act and unabsorbed depreciation u/s 32(2) of the Act could be excluded, if such loss and depreciation pertained to an year outside the block period. Regarding the disallowance of interest and salary to partners, whereby the loss returned in the block return, for the above assessment years got reduced, submission of the ld. counsel was that the assessee was entitled to claim interest and remuneration to partners as per sec. 158B(b) of the Act. According to the ld. Counsel, such claim of salary and interest to partners were never found to be false and, therefore, would not come within the definition of "undisclosed income" as per Sec.158B(b) of the Act. In any case, according to him, interest and salary paid to working partners was necessarily to be excluded in view of addition of the words " to any partner not being a working partner" in cl. (b) of the Explanation to sec.158BB(1) of the Act. According to the ld. counsel, the above words which were added by Finance (No.2) Act, 1998 was clarificatory and therefore, had retrospective effect. Ld. counsel submitted that as per the partnership deed dated 29-9-1994 and codicil dated 15-9- 1995 (Paper Book Vol. II pages 1 to 4 and 5 to 6) for assessment years 1996-97 and ITSS(A)217/Mds/2006 1997-98 R.Easwaran and R.Duraiswamy were working partners and for asst. year 1998-99 R.Easwaran , R.Duraiswamy and G. Selvaraj were working partners. For his contention that the words "to any partner not being a working partner", though inserted by Finance (No.2) Act. 1998 w.e.f. 1-4-1999, had retrospective effect, reliance was placed on the decisions of the Hon'ble Apex Court in the case of Allied Motors (P) Ltd. vs. CIT(224 ITR 677), CIT vs. JH Gotla ( 156 ITR 323) and CIT vs. Alom Extrusions Ltd. (227 CTR 417). Relying on the explanatory memorandum to the Finance Bill 1998- 99, wherein the purpose of insertion of the above mentioned words was explained, ld. counsel submitted that the amendment was clarificatory in nature.
10. For Asst. year 1996-97, ld counsel brought to the attention of the Bench that disallowances made by the A.O and sustained by the CIT(A) included, in addition to the salary and interest to working partners, a sum of Rs. 7,529/- which was already suo motu added by the assessee in the computation statement filed alongwith the block return. He relied on paper book Vol. 1, page 1 for this. According to him, this had resulted in a double disallowance.
11. Per contra, the ld. D.R. submitted that assessee never cooperated with the A.O. nor the CIT(A) during the course of assessment or appellate proceedings. According to him, claim for aggregation of losses alongwith the income within the block period was first time made by the assessee before the Tribunal and never before the CIT(A). Further according to him the amendment of cl. (b) of the Explanation to sec.158BB(1) brought in by Finance (No.2) Act, 1998 was effective only from 1-4-1999 and, therefore, no retrospectivity could be presumed.
ITSS(A)217/Mds/2006
12. We have perused the orders and heard the rival contentions. First we deal with the issue regarding the aggregation of losses as well as income of the assessment years falling with the block period. In our opinion this is a settled issue in view of the decision of the Hon'ble Apex Court E.K Lingamuthy & Anr. (supra). It was held therein that set off of unabsorbed losses and depreciation arising in any of the previous years in the same block period against the income assessed in other previous years in the same block period was not prohibited. We also find that the Mumbai Bench of this Tribunal in the case of B.D.A. Ltd. ACIT (65 ITD 501) held as under:
"Sec. 158BH clarifies that save as otherwise provided in this Chapter. There is no provisions of the I.T. Act shall apply to an assessment made under the Chapter. There is no prohibition against the losses of some of the previous years comprised in the block period being set off against the income of the other years comprised in the block period. Even on first principles, it is not possible to countenance the argument of the Revenue that the result of the computation of a particular period comprised ion the block period has to be ignored, if such computation shows a loss. It would be the same thing as saying that in respect of a normal previous year consisting of a period of twelve months, the result of computation for the first period of six months would be ignored, if it shows a loss, and the income computed in respect of the rest of the six months only would be taken. Such an argument, if advanced in respect of an assessment of an assessee whose case is not covered by Chapter XIV-B, cannot be accepted, as it is a well accepted and recognized position that the computation must be made with reference to the whole period of twelve months comprised in the previous year and the tax is payable only if such computation shows a positive income. Losses incurred during the previous year cannot be ignored and this principle is in-built in the concept of an assessment under the IT Act The principle is that for the purpose of charging income-tax the various sources of income of an assessee have got to be aggregated and the results of each source for the entire previous year have to be reckoned and merely because the first few months of the previous year show a positive income and the rest of the period shows a negative income, the result of the later period cannot be ignored. The income tax law does not permit this. What is true of the assessment of an assessee who has not been brought under s.132 and in whose case Chapter XIV-B does not apply is also true in respect of an assessee who has been searched and whose assessment is to be made under XIV-B. There is no difference between the two ITSS(A)217/Mds/2006 types of cases so far as the application of the principle is concern3ed. The undisclosed income is to be computed with reference to the entire block period and it is the total undisclosed income relating to the block period that is charged to income-tax under sub-s.(2) of s.158BA. It follows that the results of the different previous years comprised in the block period will have to be aggregated in order to find out the "total undisclosed income relating to the block period". In other words, the block period is to be treated as the previous year and so it follows that the losses suffered during certain parts or periods of the block periods have to be set off or adjusted against the income earned during the remaining parts of period thereof.
"Sec.158BB gives effect to the principle of aggregation. To paraphrase sub-s.
(1), it says that the undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period. The undisclosed income is to be computed in accordance with Chapter IV of the Act (ss 14 to 59). Reading sub-s. (1) in conjunction with cl. (a) of the Explanation, it is clear that while aggregating the results of the different previous years falling within the block period on the basis of the evidence found as a result or the search of the documents or such other materials as are available with the AO, he may find that the computation of the income as per Chapter IV (ss.14 to 59) yields a negative result, i.e., a loss. The possibility of this position has been taken into account by cl. (a) of the Explanation. It is significant that having done so, the Explanation does not further say that if the computation results in a loss it should be ignored. On the contrary, it proceeds to say that the loss for that previous year shall be considered for aggregation. It further clarifies lthat only the brought forward losses under Chapter VI and the unabsorbed depreciation under s. 32(2) cannot be adjusted against lhe income of a previous year while resorting to aggregation. Cl. (c) of s.158BB (1) does not admit of the argument to the effect that the returns for the asst. yrs. 1989-90, 1993-94, 1994-95 and 1995-96, for which losses have been computed in the block assessment, not having been filed till the date of search, the losses computed for those years cannot be set off against the income compu5ted in respect of the other yea5rs falling within the block period. One of the objects of a search is to obtain evidence regarding the true income of an assessee and if such evidence points to a loss, the computation being made; under the statute itself, there can be no escape from the conclusion that the loss is to be set off, however, reluctant one may be to do so. For the reasons stated above, the assessee's claim claim is accepted and the looses for the asst.yrs.1989-90, 1993-94,1994-95 and 1995-96. as computed in the block assessment, are directed to be set off against the undisclosed income computed in respect of the other previous years falling within the block period."
ITSS(A)217/Mds/2006
13. Now if we look at the case in hand, no doubt for asst. years 1996-97 to 1998-99 assessee himself had returned the total income as loss in his block period return. No doubt, the A.O made certain disallowances, of which some were deleted by the CIT(A), whereby the losses got scaled down. The observation of the CIT(A) at paras 5.2, 6.2 and 7.2 are that the total income, after deletion of certain disallowances made by the A.O. had resulted in losses of Rs.3,63,656/-, Rs.3,02,720/- and 1,49,875/- respectively. However, the CIT(A) relying on sub cl.(A) of cl. (c) of sub-s.(1) of sec. 158BB considered the income for the respective assessment years as 'nil'.
14. This brings us to the said clause and the sub-sections which run as under:
"158BB(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous year falling within the block period computed, (in accordance with the provisions of the 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 AO 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)..........
(b)...........
(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 ITSS(A)217/Mds/2006 where such entries result in computation of loss for any previous year falling in the block period;"
Sub-cl. (A) relied on by the CIT(A) is for working out the aggregate of the total income or loss which are to be reduced from the aggregate of the total income computed on the basis of evidence found as a result of search, such other material or other documents relatable thereto falling within the block period. Admittedly, in this case assessee had not filed any return. Therefore, what is to be reduced from the aggregate of the undisclosed income for the block period computed on the basis of the evidence as a result of search and relatable material will always be 'nil', as per cl. (c) above. To this extent there can be no qualms. Thus the total income that is to be worked out in the first place before effecting any deduction of type mentioned in clause 'a' to 'f', has to be in accordance with the provisions of the Act as stated in clause (1). When we apply the provisions of the Act, it is not possible to ignore the loss of any previous years and consider only income of those previous years falling within the block. This position is clearly laid down by the decision of the Hon'ble Apex Court in the case of A.K. Lingamurthy (supra) and of the Mumbai Bench of the Tribunal in the case of B.D.A Ltd. (supra). Hence we are of the opinion that the CIT(A) erred in considering the losses of these years as nil. Assessee is well eligible for set off of such losses against the profits, if any, for the other previous years falling in the block period.
15. Coming to the second aspect which is agitated by the assessee viz. for exclusion of salary and interest paid to all its partners, we are not inclined to accept the argument of the ld. counsel for the assessee that such payments to partners, were not found to ITSS(A)217/Mds/2006 be false and, therefore, would not fall within the definition of "undisclosed income" as per sec. 158B(b) of the Act. No doubt, deduction of salary and interest to partners claimed by the assessee was not found to be false by any of the authorities below. The question is whether such claim could be considered as a claim one made under the Income-tax Act. Definition of "undisclosed income" as given in sec.158B(b) of the Act runs as under:
" Undisclosed income includes any money, bullion, jewellery or other valuable article or thing or any income based on anhy entry in the books of account or oher documents or transactions, where suich money, bullion, jewellery, valuable article, thing, entry in the books of accounts or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act or any expense, deduction or allowance claimed; under this Act which is found to be false."
16. Last leg of the definition relied on by the ld. A.R., is clear in that an allowance, expense or deduction had to be claimed under the Income-tax Act first and only thereafter the question whether it was false or not would arise. Assessee admittedly had not filed any return of income for any of the relevant assessment years included in the block period, and therefore, cannot say that it had made a claim under the Act for the salary and interest paid to its partners. The expense, deduction or allowance mentioned in Sec.158BB (b) of the Act are those items which were claimed in regular return or returns filed prior to the search and not after the search. Income shown in returns filed subsequent to search, on a notice under sec. 158BC of the Act and the income assessed thereafter all partake the character of undisclosed income only.
ITSS(A)217/Mds/2006
18. 17. Now coming to the second alternative plea that interest and salary paid atleast to the working partners had to be allowed. Pleading of the ld. A.R. is that the words "to any partner not being a working partner" inserted in cl.(b) to Explanation to sec. 158BB(1) were clarificatory in nature. For resolving this issue, it is necessary to have a look at the said Explanation (b) before and after the insertion of the above mentioned words. Before insertion of the above mentioned words cl. (b) of the Explanation read as under:
"Explanation: For the purposes of determination of undisclosec income,-
(a) .............
(b) "of a firm, returned income and total income assessed for each of the previous years, falling within the block period shall be income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called:
Provided that undisclosed income of the firm so determined shall not be chargeable to tax in the hands of the partners, whether on allocation or on account of enhancement;"
After the amendment made through Finance (No.2) Act, 1998 w.e.f. 1-4-1999 the clause read as under:
"(b) of a firm, returned income and total income assesaseds for each of the previous years falling within the block period shall be the income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called, to any partner not being a working partner:
Provided that undisclosed income of the firm so determined shall not be chargeable to tax in the hands of the partners, whether on allocation or on account of enhancement)."
ITSS(A)217/Mds/2006
18. Explanatory Memorandum to the Finance Bill 1998 clearly mentions that the addition of the words "to any partner not being a working partner" were clarificatory in nature. The relevant part of the Memorandum is reproduced under:
"The bill also seeks to clarify that the deduction of salary. interest. Commission, bonus or remuneration by whatever name called in Explanation (b) in sub-sec. (1) of sec. 158BB as being in relation to any partner not being a working partner."
19. Now if we look through the above Explanation before the addition of the words, it does look a bit ambiguous. It would, in other words, mean that while computing the undisclosed income of a firm, returned income and total income that are to be considered were those before allowing deduction of salary, interest, commission, bonus or remuneration, etc. No doubt, these general words would take into its ambit all types of salary, interest, commission, bonus, etc. and prima facie, could not be limited to such payment effected to partners alone. To say that total income or even undisclosed income could be that amount before allowing legitimate business expenditure as salary, interest, commission, bonus, etc. would be irrational. It is for this reason that the clarificatory words were brought in. In other words, legislature always meant disallowance of only such items paid to partners, and that too, who were never working partners. Legitimate payments to working partners as well as to other employees were never intended to be disallowed. No doubt, when the words "to any partner not being a working partner" were inserted by Finance (No.2) Act, 1998, the date specified was as effective from 1-4-1999. But in our opinion, this could still be considered only as curative in nature, in line with the decision of the Hon'ble Apex Court in the case of CIT v. Alom Extrusions Ltd. (227 ITSS(A)217/Mds/2006 CTR 417). There the second proviso to sec. 43B of the Act which resulted in implementation problem, was deleted through Finance Act, 2003. Hon'ble Apex Court held that Finance Act, 2003 which had brought in a uniformity with regard to application of first proviso though made applicable by the Parliament only w.e.f. 1- 4-2004, was curative and would apply retrospectively. We are, therefore, of the opinion that the words "to any partner not being a working partner" added to cl. (b) of the Explanation to sec. 158BB(1) through Finance (No.2) Act, 1998 though specified to be w.e.f. 1-4-1999, was curative and had to be given effect retrospectively. This being so, claim of the assessee with regard to interest and salary paid to working partners for the asst. years 1996-97 to 1998-99 could not have been disallowed. These disallowances are, therefore, directed to be deleted and the A.O is directed to rework the loss for these assessment years, allow set off of such losses against income, if any, of other previous years falling within the block. As already held by us, assessee would be eligible for aggregation of such reworked losses with the income, if any, of the previous years falling within the block period for the purpose of assessing the undisclosed income under Chapter XIVD of the Act.
20. In the result, ground No.2 of the concise grounds of appeal of the assessee is allowed to the extent indicated above.
21. When concise grounds Nos.3 and 4 were taken up, the ld. counsel for the assessee submitted that he was not pressing them These grounds are, therefore, dismissed as not pressed.
ITSS(A)217/Mds/2006
22. Vide its concise ground No.5, grievance raised by the assessee is that the CIT(A) did not exclude income computed for the broken period, for which the previous year had not ended. According to the assessee, such income was worked out based on the entries recorded in its regular books of account, and hence would not be undisclosed income.
23. Short facts as apropos are that the search in the premises of the assessee was conducted on 12-10-2000. Therefore the block period included the fragmented or broken period starting from 1-4-2000 to 12-10-2000, relevant to Asst. year 2001-
02. The A.O based on the accounts seized during the search, determined the income for the broken period as Rs.3,57,779/- and included it in the undisclosed income for the block period.
24. Assessee contested this before the ld. CIT(A), and the AO on a remand by the CIT(A), reported as under:
" The search in this case was conducted on 12-10-2000. Since the assessee had not filed the return of income for any of the earlier years from the formation of the firm the A.O has taken the total income upto the date of search for the AY 2001-02 as undisclosed income As per the total income computation statement of the assessee for the AY 2001-02 upto 12-10- 2000 the total income comes to Rs.3,32,420/- which is higher than the undisclosed income adopted in the asst. order. The assessee has claimed depreciation, interest on partners capital and remuneration to partners on proportionate basis in arriving at the above mentioned income. The depreciation claimed appears to be correct. The remuneration claimed to working partner Sri R. Easwaran amounting to Rs.10,800/- is also eligible for deduction. It has to be mention3ed here that as per seized materials ES/B&D/S2 and 3 (day book and ledger for the FY 2000-01, written upto 2- 10-2001 two other partners viz. Sri R.Duraisamy and G.Velusamy are alsso ITSS(A)217/Mds/2006 paid remuneration of Rs.10,800/- each but the assessee firm has not claimed credit for this in the block return filed by it. The assessee has further claimed interest on partner's capital at Rs.1,68,288/- which is arrived at as given below:
"Interest on capital to partners proportionate:
3,15,000 x 195 days/365 days= Rs.1,68,288/-
On verification of the partner's capital account it is seen that the opening balance in the partners capital account are:
1. Sri R.Easwaran Rs. 6,13,068.34
2. Sri R.Duraisamy Rs. 4,92,380.94
3. Sri M.Govindasamy Rs. 4,11,983.90 Rs. 15,17,433.18 Interest at Rs.18 % pm on this capital comes to Rs.2,73,137/-. The proportionate amount eligible for deduction u/s 158BB till the date of search, for 191 days is:
2,73,137 x191 daus/365 days = Rs.1,42,929/-
So the interest on capital has to be restricted to Rs.1,42,929/- against that claimed by the assessee at Rs.1,68,288/-.The excess amount of interest on capital claimed by the assessee has to be added back to the income Income returned by the assessee (at Rs.3,32,420/-)."
25. Argument of the assessee before the CIT(A) was that the income for the fragmented period could not be considered, since it was computed based on the entries recorded in the books of account maintained in the normal course. Though the CIT(A) agreed with this contention, he was of the opinion that the assessee having not filed a return for any of the earlier years, it could not have been ITSS(A)217/Mds/2006 expected that it would file a return for the assessment year relevant to the broken period. Therefore, he confirmed the action of the AO in treating the income for the broken period as a part of the undisclosed income.
26. Now before us the ld. A.R. submitted that the CIT(A) had accepted the plea of the assessee that income computed on the basis of regular books for the fragmented period could not be considered as assessee's undisclosed income. According to him, cl. (d) of sec. 158BB(1) clearly mandated that where the previous years had not ended, the income based on the entries recorded in the books of account maintained in normal cours, had to be excluded.
27. Per contra, the ld. D.R submitted that assessee never had the habit of filing a return and therefore, the A.O was justified in treating the income of the fragmented period also as a part of undisclosed income.
28. We have heard the rival submissions and perused the records. There is no dispute here that the income worked out by the AO was based on the books of account seized at the time of search and such books of account formed part of the books and documents maintained in regular course by the assessee. It is also true that the assessee had never filed returns of income for any of the years. But, in our opinion, this would not be a sufficient ground for giving a go bye to a specific provision in the Statute. Computation of undisclosed income of the block period as given in Sec. 158BB(1) read along with sub-cl. (d) thereof would clearly show that from the total income of previous years falling within the block, reduction has to be ITSS(A)217/Mds/2006 given for the various items mentioned under cl. (a) to (f) which, inter alia included cl. (d) also. Clause (d) specifies that if the previous had not ended, then income as recorded in the books of account maintained in normal course on or before the date of search had to be excluded. In this case the previous year relevant to asst. year 2001-02 had not ended since the date of search was 12-10-2000. Therefore, it was necessary that income for the fragmented period viz. from 1-4-2000 to 12- 10-2000 had to be excluded, if it was recorded in the books of account maintained in normal course before the date of search. That the books were maintained in the normal course and were found during the course of search have not been disputed. Hence reduction of such income was necessarily to be given. Ld. CIT(A) as well as the A.O. therefore, fell in error in considering such income also as undisclosed income of the assessee. We delete the income of the fragmented period, from the undisclosed income. Ground No.5 of the concise ground is, therefore, allowed.
29. Ground No.7 is only the prayer of the assessee with regard to various grounds raised by it and need no specific adjudication.
30. Now we come to the additional grounds filed by the assessee. Arguing for the admission thereof, ld. counsel for the assessee submitted that the additional grounds were pure question of law and no new records or facts were necessary for adjudicating on it. Per contra, the ld. D.R. submitted that the grounds now taken through additional grounds were never taken by the assessee before the AO or ITSS(A)217/Mds/2006 CIT(A) and therefore, if admitted, it had to be remitted back to the lower authorities.
31. We have heard the rival submissions and have gone through the additional grounds. Ground No.1 relate to salary and interest paid to partners being treated as uindisclosed income. This issue we have already dealt with while dealing with the concise ground No.2 of the assessee and, therefore, has become redundant.
32. Additional ground Nos.2 to 4 were never raised by the assessee before the CIT(A) or the A.O. Hence, in the interest of justice, we are of the opinion that such additional grounds 2 to 5 are necessarily to be first considered by the AO and then by the CIT(A). We therefore, admit the additional grounds 2 to 4 and remit them to the AO for consideration and dealing with it in accordance with law. Assessee shall be given necessary opportunity for representing its' case and the assessee shall give utmost cooperation to the A.O in such proceedings.
33. In the result, appeal of the assessee is allowed protanto. Order pronounced in open Court on 6th Aug, 2010.
Sd/- Sd/- (GEORGE MATHAN) (ABRAHAM P. GEORGE) Judicial Member Accountant Member Chennai: 6th August, 2010. Nbr"
Cc:The Assessee 2)The Assessing Officer 4)The CIT(A) 4) The CIT, 5)The D.R 6)Guard File.