Income below the taxable limit cannot be included as undisclosed income of the block period under Section 158BB of the Income Tax Act, 1961.

( 1 ) THIS appeal has been preferred on four grounds of which the fourth one is general and is implicit in ground No. 1. Before we take up ground No. 1, we propose to deal with grounds Nos. 2 and 3, viz. :"ii. For that the Income-tax Appellate Tribunal erred in directing that figure of disclosed income of the block period should be taken as per Section 158bb (1) (c) of the Income-tax Act, 1961, the same should be taken as nil. III. For that the Income-tax Appellate Tribunal is wrong in observing in para. 13 of the order that the figure of disclosed income for the purpose of undisclosed income under Section 158bb should be taken as per books of the assessee when there is no legal requirement for the assessee to file his return of income which is in contravention of Section 158bb (1) (c) of the Act. "grounds Nos. 2 and 3 : in this case in the block assessment after search and seizure held in the previous year 1995-96 ten (10) earlier previous years from 1986-87 were included as law then prevailed. It was apparent from the books of account that the income for some of the previous years was below the taxable limit. This was sought to be included in the block assessment and no adjustment was allowed to the assessee by the Assessing Officer. On appeal, the Income-tax Appellate Tribunal allowed the adjustment and excluded the income for those years where the income was found to be below the taxable limit. The law as it stood before the Finance Act, 2002, provided some grounds for confusion. Even then on the same proposition in CIT v. M. M. George [2002] 254 ITR 45, the Kerala High Court had taken a view that the income for the periods which were below the taxable limit could not be included in the block assessment. However, subsequently by the Finance Act, 2002, Section 158bb was amended with effect from July 1, 1995. By reason of such amendment, the principle laid, down in M. M. George [2002] 254 ITR 45 (Ker) was statutorily recognised.

( 2 ) IN the present case, when the learned Tribunal had given its decision, this amendment was not there. It seems that the learned Tribunal had correctly interpreted the law and given a right decision in excluding the income for the years below the taxable limit as was held in M. M. George [2002] 254 ITR 45 by the Kerala High Court. The amendment so brought about has since been given effect from July 1, 1995, viz. , before such search and seizure was held. Therefore, the amendment should be deemed to have been in the statute at the time when search and seizure were held and such benefit that has been given to the assessee by the Tribunal can be said to be justified and in accordance with law. Similar question arose in CIT v. M. M. Thomas [2004] 265 ITR 327 again before the Kerala High Court where it was held that since the search under Section 132 of the Income-tax Act, 1961, was conducted on November 22, 1995, that is after the retrospective amendment of Sub-clause (B) of Clause (c) of Sub-section (1) of Section 158bb, the income below the taxable limit of a previous year could not be included as undisclosed income of the block period.

( 3 ) IN this case, search was held on November 3, 1995, which is definitely after July 1, 1995, attracting the application of the amended provision, which is deemed to be there on the statute on the date when searches were held. Therefore, grounds Nos. 2 and 3 are to be answered against the Department and in favour of the assessee. Since we are in agreement with the decisions in M. M. George [2002] 254 ITR 45 (Ker) and M. M. Thomas, respectively, having regard to the amended provision incorporated in the Section itself by the Finance Act, 2002, with retrospective effect from July 1, 1995, these two questions are answered in favour of the assessee and against the Department ground No. 1 :"for that the Income-tax Appellate Tribunal was wrong in deleting the entire addition made in the assessment in respect of income from 'pachai business'. "

( 4 ) S