I. T. A. No. 500 of 2007 1 In the High Court of Punjab & Haryana at Chandigarh I. T. A. No. 500 of 2007 Date of decision : 18.8.2008 The Commissioner of Income Tax (Central), Ludhiana ..... Appellant vs M/s. Hukam Chand Raj Kumar Commission Agent, Anaj Mandi, Nissing ..... Respondent Coram: Hon'ble Mr. Justice Hemant Gupta Hon'ble Mr. Justice Rajesh Bindal Present: Mr. K. K. Mehta, Advocate, for the appellant. Mr. Deepak Sharma, Advocate, for the respondent. Rajesh Bindal J. The revenue is in appeal before this court against the order passed by the Income Tax Appellate Tribunal, Delhi Bench 'B', New Delhi, in ITA (SS) No. 350/D/2002 dated 16.3.2007 for the block period 1.4.1989 to 31.3.2000, raising the following substantial questions of law:- i) “Whether on the facts and in the circumstances of the case, the Tribunal was correct in law in holding that the recordings in the seized documents will have to be further corroborated by deeper investigation to prove its authenticity; and in admitting the deviation from the past practice admitted by surrender of income in previous years while charging interest on the same set of debtors ? ii) Whether on the facts and in the circumstances of the case, the ITAT can condone the delay in filing of return for the purpose of computing interest u/s 158BFA (1) of the Income Tax Act ? iii) Whether, on the facts and in the circumstances of the case, the Tribunal was correct in law in deleting the surcharge levied under proviso to section 113 of the Income Tax Act on the ground that search had taken I. T. A. No. 500 of 2007 2 place in case of assessee prior to the insertion of the proviso w.e.f. 1.6.2002 ?” On 25.2.2008 considering the submissions made by the learned counsel for the appellant, notice was issued in the appeal only for consideration of question no. 3 as referred to above. Learned counsel for the appellant submitted that as the only question remaining to be decided in the present appeal is squarely covered by the judgment of Hon'ble the Supreme Court in Commissioner of Income Tax vs Suresh N. Gupta [2008] 297 ITR 322 (SC), it may be heard and decided finally at the motion hearing. With the consent of the parties, the instant appeal is heard for final disposal. Briefly, the facts are that on 31.3.2000, a search was made at the business and residential premises of the firm and its partners. In addition to the regular books of accounts and documents, a number of documents recording accounts of undisclosed transactions and income were found. Assessment under Section 158 BC (c) of the Income Tax Act, 1961 (for short, 'the Act') was framed at an undisclosed income of Rs. 57,54,863/-. Surcharge on the tax payable was also levied. The Tribunal while accepting the plea of the respondent-assessee set aside levy of surcharge by relying upon a Special Bench judgment of the Tribunal in the case of Merit Enterprises vs DCIT 101 ITD 1 (Hyd.) (SB) and further a judgment of this court in Commissioner of Income Tax vs Roshan Singh Makkar (2006) 203 CTR (P&H) 125. Learned counsel for the revenue submitted that after the earlier judgment of this Court in Roshan Singh Makkar's case (supra), opining that the surcharge was not leviable in case search was carried out before 1.6.2002, as the amendment in Section 113 of the Act was made with effect from that date, in a subsequent judgment in Lalit Hosiery and others vs Union of India and others (CWP No. 2046 of 2005 decided on 18.10.2006) a Division Bench of this Court while referring to judgment in Roshan Lal Makkar's case (supra) and considering that there was a provision of levy of surcharge in the Finance Act itself, held that even for any search conducted prior to 1.6.2002, the surcharge was leviable on the tax assessed. An identical issue came up for consideration before Hon'ble the I. T. A. No. 500 of 2007 3 Supreme Court in Suresh N. Gupta's case (supra), where the question was regarding levy of surcharge for the block period comprising of assessment years 1991-92 to 2000-01. In that case search was conducted on 17.1.2001 i.e. before the date when the proviso to Section 113 of the Act were added in the Act on 1.6.2002. Referring to Article 271 read with Entry 82 of List I of Seventh Schedule to the Constitution of India, Hon'ble the Supreme Court opined that power to levy surcharge is not traceable to Section 4 of the Act. Every year the Finance Act is enacted by the Parliament to give effect to the financial proposals of the Central Government. The rate at which a charge on the total income of the previous year is imposed under Section 4(1) of the Act is not laid down therein, and therefore, the said section provides that the charge has to be fixed by the Central Act. The relevant paras from the judgment in Suresh N. Gupta's case (supra) are extracted below:- “Under section 158 BB, there is the theory of “block- period”. It is based on “the principle of aggregation of total incomes”. Under that section, the first aggregate to be computed is the total income of the previous years falling within the block period including returned/ assessed incomes as per regular returns and regular assessments. The second aggregate to be computed is the aggregate of the total incomes/ losses of the previous years determined in terms of clauses (a) to (f) of section 158BB (1). The difference between the first aggregate and the second aggregate is described in section 158B (b) as the “undisclosed income” to be taxed under the provisions of section 113 of the 1961 Act at the special rates prescribed. Further, clause (a) of the Explanation to section 158BB clarifies that the total income/loss of each previous years 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 section 32 (2) of the 1961 Act. I. T. A. No. 500 of 2007 4 Hence, once has to read section 158BB with section 4 of the 1961 Act. There is no conflict between the computation machinery under Chapter XIV-B and normal computation machinery under Chapter IV. This is the importance behind enactment of section 158BH which inter alia states that if there is no conflict between the provisions of Chapter XIV-B and any other provisions of the 1961 Act, then the latter will operate. There is a fallacy in the argument of the assessee that the concepts of “total income” and “previous year” are given a go by in Chapter XIV-B. The above analysis of section 158BB indicates that both the concepts are retained in Chapter XIV-B. The only difference is that section 4 of the 1961 Act charges the total income of a person of one single previous year (unit of assessment) whereas section 158BA (2) levies a charge on the income of a person for the block period of previous years relevant to 10/6 assessment years. In our view, the words “block period”, as defined in section 158B (a), comprises previous years relevant to 10/6 assessment years as one unit of time for the purposes of assessment. As sated above, the object behind the enactment of Chapter XIV-B is to assess and compute “undisclosed incomes” relatable to different accounting years in which the income is earned. Therefore, if the block period comprising of previous years relevant to 10/6 assessment years is treated by Parliament as one unit of time for assessment purpose, one has to correlate “undisclosed income” to each of the years in which income was earned by the assessee. It is true that under Chapter XIV-B, computation of regular income and computation of undisclosed income has to be worked out separately. However, to arrive at the figure of undisclosed income, the said parallel calculations have to converge in order to work out the difference I. T. A. No. 500 of 2007 5 between the first and the second aggregates of the total incomes/ losses of the previous year, in which undisclosed income is taxed under section 113. Therefore, in our view, the concept of a charge on the “total income” of the previous year under the 1961 Act is retained even under Chapter XIV-B. Therefore, section 158BB which deals with computation of undisclosed income of the block period has to be read with computation of total income under Chapter IV of the 1961 Act. Once section 158BB is required to be read with section 4 of the 1961 Act, then the relevant Finance Act of the concerned year would automatically stand attracted to the computation under Chapter XIV-B.” xxx xxx xxx As stated above, section 158BA(2) read with section 4 of the 1961 Act looks at section 113 for the imposition rate at which tax has to be imposed in the case of block assessment. That rate is 60 per cent. That rate is fixed by the 1961 Act itself. That rate has been stipulated by Parliament not with a view to oust the levy of surcharge but to make the levy cost-effective and easy. Therefore, a flat rate is prescribed. The difficulty in block assessment is that one has to correlate the undisclosed income to different years in which income is earned, hence, Parliament has fixed a flat rate of tax in section 113 [see [1995] 212 ITR (St.) 691. On the contrary, a bare perusal of various Finance Acts starting from 1999 indicates that Parliament was aware of the rate of tax prescribed by section 113 and yet in the various Finance Acts, Parliament has sought to levy surcharge on the tax in the case of block assessment. .......... For the aforestated reasons, we hold that even without the proviso to section 113 (inserted vide I. T. A. No. 500 of 2007 6 Finance Act, 2002, with effect from June 1, 2002), the Finance Act 2001, was applicable to block assessment under Chapter XIV-B in relation to the search initiated on January 17, 2001, and accordingly surcharge was leviable on the tax amounting to Rs. 97,456 at 17 per cent amounting to Rs. 16,504. We accordingly answer the above question in favour of the Revenue and against the assessee. Whether insertion of the proviso in section 113 by the Finance Act, 2002 was applicable to search up to May 31, 2002 : In view of our findings on the first point, strictly speaking we are not required to examine this question. However, it has been vehemently urged on behalf of the assessee that the said proviso cannot operate retrospectively. This argument is founded on the basis that until the amendment in section 113 with effect from June 1, 2002, there was inconsistency with regard to levy of surcharge. According to the assessee, the question which usually bothered both the assessee and the Department was whether surcharge was leviable with reference to the rates provided for in the Finance Act of the year in which the search was initiated or the year in which the search was concluded or the year in which the block assessment proceedings under Section 158BC were initiated or the year in which block assessment order was passed. According to the assessee, there was a conference of Chief Commissioners which had suggested to the Central Government to amend section 113 with retrospective effect. However, despite such recommendations, the Central Government inserted the proviso in section 113 only with effect from June 1, 2002. Therefore, according to the assessee, the proviso cannot be interpreted as retrospective. I. T. A. No. 500 of 2007 7 We find no merit in the above arguments. Both, the Finance Acts of 2000 and 2001, indicated that a substantive charge was created in respect of the income tax to be levied. Both these Acts prescribed the rates of surcharge. The said surcharge did not depend for its leviability on the assesee's liability to pay income-tax but on the assessed tax. The assessee has relied upon the above anomalies in support of their contention that such anomalies made the charge ineffective. In our view, such submission amounts to begging the question. According to the assessee, prior to June 1, 2002, the position was ambiguous as it was not clear even to the Department as to which year's Finance Act would be applicable. To clear this doubt precisely, the proviso has been inserted in section 113 by which it is indicated that the Finance Act of the year in which the search was initiated would apply. Therefore, in our view, the said proviso was clarificatory in nature. In taxation, legislation of the type indicated by the proviso has to be read strictly. There is no question of retrospective effect. The proviso only clarifies that out of the four dates, Parliament has opted for the date, namely the year in which the search is initiated, which date would be relevant for applicability of a particular Finance Act. Therefore, we have to read the proviso as it stands. There is one more reason for rejecting the above submission. Prior to June 1, 2002, in several cases, tax was prescribed sometimes in the 1961 Act and sometimes in the Finance Act and often in both. This made liability uncertain. In the present case, however, the rate of tax in case of block assessment at 60 per cent was prescribed by section 113 but the year of the Finance Act imposing surcharge was not stipulated. This resulted in the above four ambiguities. Therefore, I. T. A. No. 500 of 2007 8 clarification was needed. The proviso was curative in nature. Hence, the proviso inserted in section 113 merely clarifies that out of the above four dates, the relevant date for applicability of the Finance Act would be the year in which the search stood initiated under Section 158BC.” In the present case the search was conducted on 31.3.2000. In terms of the authoritative pronouncement by Hon'ble the Supreme Court in Suresh N. Gupta's case (supra), the substantial question of law, referred to above, in answered in favour of the revenue and against the assessee. The appeal is disposed of accordingly. ( Rajesh Bindal) Judge 18.8.2008 (Hemant Gupta) vs. Judge