In the second leg our article on "Finance Act, 2002- an attempt to decipher" we shall consider some other amendments to the Income tax Act, 1961.

Impounding of books during survey

Till date it was highly debatable whether during the course of survey, books of accounts and other documents can be impounded or not. Department was usually impounding the books of accounts during the survey by issuing summons u/s 131.

However, courts and tribunals have taken the view that during the course of survey, the assessing officer can exercise the power to impound books only in the circumstances as contemplated u/s 133A(6) exist and not otherwise. In other words, powers of 131(1) to impound books is available only if person surveyed fails to give or afford facility to the income-tax authority to inspect books of accounts, any other document or in carrying out survey.

With a view to prevent destruction or mis-appropriation of any evidence found during the survey, clause (ia) is inserted in sub-section (3), so as to empower the income tax authority to impound, after recording the reasons for doing so and retain in his custody for such period as he thinks fit any books of accounts or other documents impounded by him. However, he shall take prior approval from Chief commissioner or Director general or commissioner or director for retaining such books for the period exceeding 15 days (exclusive of holidays). Said provision shall take effect from 1-6-2002 only.

Expanding the definition of undisclosed income.
Clause (b) to section 158B relating to definition of undisclosed income is amended with retrospective effect 1-7-1995, so as to specifically include therein any expense, deduction or allowance claimed in this Act, which is found to be false.

This amendment possibly tries to cover the situation where if certain expenses or deduction or allowance is claimed and allowed in regular assessment if the same is found to be false due to material found during the course of search action, such expense, deduction, allowance would be treated as undisclosed income even though reflected and allowed in regular assessment. It is to be noted that word "found" used in the clause is to interpreted as any evidence found during the search or found as result of search.

It is important to note that amendment covers only expense, deduction or allowance and not cash credits, loans, advances, gifts etc.

Computation of undisclosed income of the block period.
Subsection (1) is amended w.r.e.f 1-7-1995 to provide that undisclosed income of the block period shall be based on the "evidence found as result of search or requisition of books of accounts or other documents and such other material or information as are available with the assessing officer".

As a result of this amendment a better view can now be taken that Assessing Officer can use any evidence only if it is found during the course of search.

Clause (c) of sub section (1) is substituted w.r.e.f. 1-7-1995 so as to clarify that losses incurred in years for which no return has been filed by the due date shall be added back while computing the undisclosed income, and further, that where returns were not filed because the total income was not taxable, undisclosed income shall not include such total income.

Explanation to sub-section (1) is amended w.r.e.f. 1-7-1995 to provide that for the purpose of aggregation, the total income or loss of each previous year shall be computed in accordance with the provisions of the Income Tax Act without giving effect to set-off of brought forward losses or unabsorbed depreciation. However, while computing deduction under chapter VIA for the purpose of the said aggregation, effect shall be given to the set off of the said brought forward losses or unabsorbed depreciation.

Surcharge & Block Assessment
Till date, there was controversy on applicability of surcharge on income determined under Chapter XIV-B. It was held in the case of Bulicon Towers (P) Ltd. V. ACIT 113 Taxman (Mag.) 74 (Cal.) that in absence of specific provision for charging surcharge in so far as Sec. 113, surcharge cannot be levied. However, this decision has been rendered nulity by the amendment carried out in section 113. As per new proviso added to the section 113, tax on income under chapter XIV-B shall be increased by the surcharge as applicable to assessment relevant to the previous year in which the search is initiated under section 132 or the requisition is made under the section 132A.

Method of Accounting in Block Assessment proceedings.
Without any doubt it is clear that assessee is free to follow method of accounting of his choice. However, it is held in various decisions that provisions of section 145 relating to method of accounting are not applicable to block assessment proceeding. Reliance is placed on D. N. Kamani (HUF) v DCIT 241 ITR 85 (Pat). However, amended provisions of section 144 as well as section 145 are applicable to the block assessment proceedings w.r.e.f. 1-7-1995.

Transfer Pricing Officer
One new category of officer has been established i.e. Transfer Pricing Officer. Provisions relating to Transfer Pricing Officer were not present in Finance Bill, 2002.

Where any assessee has entered into an international transaction in any previous year and the assessing Officer considers it necessary or expedient to do so he may with the previous approval of the Commissioner, refer the computation of the arm's length price in relation to the said international transaction under section 92C, to the Transfer Pricing Officer.

Before proceeding on determination of arm's length price, Transfer Pricing Officer has to issue notice to the assessee for producing any evidence on which assessee may relay in support of his computation of Arm's Length Price.

Further, Transfer Pricing Officer has been given powers u/s 154 to rectify his order and also powers of summons under section 131(1)(a) to 131(1)(d) and 133(6).

Under newly inserted section, Transfer Pricing Officer means Joint Commissioner or Deputy Commissioner or Assistant Commissioner, authorised by Board.

Some of the deficiencies in the new provisions are enumerated as under:

On the plain reading of the new section 92CA, reference to Transfer Pricing Officer can only be made by Assessing Officer and not by the Assessee.

Further, Assessee Officer is bound by the order of the Transfer Pricing Officer and Assessing Officer is precluded to carry any amendment in the Arm's length price.

There is no time limit within which the Assessing Officer shall make reference to the Transfer Pricing Officer.