Finance Bill 2022: Insertion of Section 79A

Last Updated On: March 30, 2022, 10:33 a.m.
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FINANCE BILL 2022: INSERTION OF SECTION 79A

In the Union Budget 2022-23 through Finance Bill 2022, among other tax measures, the Hon’ble Finance Minister recommended ‘Insertion of New Section 79A: – No set-off of losses consequent to search, requisition, and survey‘.

 

Deterrence against tax evasion:

136. Presently, there is ambiguity regarding set off, or brought forward loss against undisclosed income detected in search operations. It has been observed that in many cases where undisclosed income or suppression of sales etc. is detected, payment of tax is avoided by setting off, of losses. In order to bring certainty and to increase deterrence among tax evaders, I propose to provide that no set-off, of any loss, shall be allowed against undisclosed income detected during search and survey operations.” The relevant extract of  the proposed insertion by way of Section 79A is reproduced herein under:

The relevant extract of the proposed insertion by way of Section 79A is reproduced herein under:- ‘79A. Notwithstanding anything contained in this Act, where consequent to a search under section 132 or a requisition under section 132A or a survey under section 133A other than under sub-section (2A) of that section, the total income of any previous year of an assessee includes any undisclosed income, no set-off, against such undisclosed income, of any loss, whether brought forward or otherwise, or unabsorbed depreciation under sub-section (2) of section 32, shall be allowed to the assessee under any provision of this Act in computing his total income for such previous year.

For the purposes of this section, “undisclosed income” means,–– (i) any income of the previous year represented, either wholly or partly, by any money, bullion, jewelry or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132 or a requisition under section 132A or a survey under section 133A other than under sub-section (2A) of that section, which has—

(A) not been recorded on or before the date of search or requisition or survey, as the case may be, in the books of account or other documents maintained in the normal course relating to such previous year; or

(B) not been disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search or requisition or survey, as the case may be; 
 

(ii) any income of the previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the previous year which is found to be false and which would not have been found to be so, had the search not been initiated or the survey not been conducted or the requisition not been made.’  The legislative intent with regard to the above insertion could be gathered from the Finance Minister’s speech and more so with the deep perusal of the Memorandum explaining the provisions of Finance Bill 2022, which is reproduced herein under:-

 

AMENDMENT IN THE PROVISIONS OF SECTION 79A OF THE ACT:

1. Chapter VI of the Act deals with the aggregation of income and set off or carrying forward of loss. In Sections 70-80 of the Act there are specific provisions relating to set off or carry forward and set off of losses while computing the income under various heads and with respect to different classes of persons.

2. It is noticed that in some cases, assessees claim set-off of losses or unabsorbed depreciation, against undisclosed income corresponding to a difference in stock, undervaluation of stock, unaccounted cash payment, etc. which is detected during the course of search or survey proceedings. Currently, there is no provision in the Act to disallow such set-off and no distinction is made between undisclosed income which was detected owing to search & seizure or survey or requisition proceedings and income assessed in scrutiny assessment in the regular course of assessment though for incomes falling in section 68, section 69, section 69B, etc., such restriction is there.

3. Allowing the adjustment of undisclosed income detected as a result of search or requisition or survey against the loss or unabsorbed depreciation is resulting in a short levy of tax. The provision of non-adjustment of loss or unabsorbed depreciation against undisclosed income detected as a result of search or requisition or survey would help in ensuring that proper tax is paid on income detected due to a search or survey and also result in increased deterrence against tax evasion.

4. Therefore, it is proposed to insert a new section 79A in the Act to provide the notwithstanding anything contained in the Act, where consequent to a search initiated under section 132 or a requisition made under section 132A or a survey conducted under section 133A, other than under sub-section (2A) of section 133A, the total income of any previous year of an assessee includes any undisclosed income, no set-off, against such undisclosed income, of any loss, whether brought forward or otherwise, or unabsorbed depreciation under sub-section (2) of section 32 shall be allowed to the assessee under any provision of this Act in computing his total income for such previous year. 
 

5. Further, the term “undisclosed income” is proposed to be defined for the above purpose as––

(i) any income of the previous year represented, either wholly or partly, by any money, bullion, jewelry, or other valuable article or thing or any entry in the books of account or other documents or transactions found in the course of a search under section 132 or a requisition made under section 132A or a survey conducted under section 133A, other than that conducted under sub-section (2A) of section 133A, which has—

(a) not been recorded on or before the date of search or requisition or survey, in the books of account or other documents maintained in the normal course relating to such previous year; or

(b) not been disclosed to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner before the date of search or requisition or survey, or

(ii) any income of the previous year represented, either wholly or partly, by any entry in respect of an expense recorded in the books of account or other documents maintained in the normal course relating to the previous year which is found to be false and would not have been found to be so, had the search not been initiated or the survey not been conducted or the requisition not been made.

 

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