2013 (5) TMI 788 - AT - Income Tax

Block assessment - addition to income - set off of unabsorbed business and depreciation loss (accounted and unaccounted) - addition for lease rent claimed - Held that - As far as the legal principles are concerned it is already an established law that matters which are recorded in the books of account and on which no incriminating material was found cannot be considered in the block assessment. It was also an established law that proceedings undertaken under section 133A and information already gathered before the search cannot be a basis for completing the block assessment unless there is incriminating material. The same cannot be considered in the block assessment. But 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-section (2) of section 158BA. It follows that the results of the different various 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 period have to be set off or adjusted against the income earned during the remaining parts or periods thereof. Thus on legal principles the contentions of the assessee are valid. There is an admission by the Assessing Officer on record that these transactions were already being ascertained and inquired in section 133A proceedings and just because the search and appraisal report, the Assessing Officer has considered them in the block assessment proceedings. Even before the search, purchase of non-existing assets from REPL was rejected in the case of IDBI on the basis of which the assessment in that case was completed for the assessment year 1996-97. Therefore, the assessee' s contentions that these matters were crystallised much before the search proceedings has to be accepted. Therefore, the same cannot be considered in the block assessment. Having crystallised the issue in the assessment proceedings, not only in the case of the assessee but also in the case of IDBI, the basis on which certain disallowances were already made, it is obligatory that these matters are to be examined in the regular assessment only. In case the Revenue did not prefer an appeal on the order of the Commissioner of Income-tax (Appeals) on regular assessment, it is the mistake of the Revenue but this forum cannot permit the addition or deletion in block assessment on the matters which were crystallised in the 133A proceedings, without there being any incriminating material. Therefore, the Revenue can file the appeal belatedly with a condonation so as to reverse the findings of the Commissioner of Income-tax (Appeals). Thus block assessment order set aside with a direction to the Assessing Officer to reconsider the matter - Decided in favour of assessee for statistical purposes. Addition made for imaginary receipts of foreign remittances - Held that - As seen from the office note extracted earlier the Assessing Officer made enquiries with banks and came to a conclusion that the so-called remittances are not genuine. Therefore the contention of the assessee that these are forged documents for the purpose of obtaining credit can be accepted. Since no income/ receipt was identified the document need not be considered for making any addition that too ad hoc additions. The ground raised by the assessee is therefore allowed. - Decided in favour of assessee. Outstanding bill of the Scholar Finance Management P. Ltd. - Held that - As seen from the document and contentions the transaction was an interoffice note about money to be received and made by the director of Avon. This document has no relation to company and so no undisclosed income can be brought to tax on the so called receivable. We are also guided by the finding that most of the transactions are recorded in books and practically no unrecorded transaction. The ground is allowed. -Decided in favour of assessee Disallowance of interest for the assessment year 1998- 99 - Held that - The contention of the assessee are valid. There is TDS also made on the amount. This indicates that the transaction is one of regular interest receipt. The document seized also does not indicate the company to which it pertains to. The query by the Assessing Officer as extracted in the order (at page 19) was only asking the assessee to explain whether the same was recorded by any group concerns. In view of this, we hold that this docu ment does not establish any unaccounted income. In fact, the Assessing Officer made addition of net amount without considering the TDS made on the gross amount. - Decided in favour of assessee Loan amount adjustment for the assessment year 1998-99 - Held that - was submitted before us that the said loose paper has nothing do with the affairs of the company REPL. The said loose paper in any case does not indicate any receipt of income by REPL or anyone else. The said paper does not represent any unaccounted income of the company. Restore the issue to the file of the Assessing Officer to examine the document and the records to decide whether the same can be considered as unaccounted. - Decided in favour of assessee by way of remand. Unaccounted transactions th regard to N. Cheraj Travels P. Ltd. - Held that - nsidering the finding by the Assessing Officer that most of the transactions are recorded in books and also the fact that this bill does not pertain to the assessee, we are inclined to accept the assessee' s contention that this does not pertain to the assessee and more so as unaccounted transaction. There is no enquiry also whether the amount was paid or set tled. For these reasons, we allow the ground and delete the addition. - Decided in favour of assessee Unaccounted transaction with Runner Corporation - Held that - The copy of the document was not placed before us. Moreover, the contention that this transaction is accounted was not examined properly. Therefore in the interests of justice, we restore the matter to the Assessing Officer to examine the document and contentions to decide afresh. - Decided in favour of assessee by way of remand. Unaccounted transaction with Shri S. N. Dhruv - Held that - As submitted that company REPL and other concerns had in year 1993 acquired shares of Saple' s Scale Mfg. Co. Ltd. The loose papers contain the detail of payments made to Shri S. N. Dhruv who was majority shareholder of the said Saple' s Scale. These payments were made by account payee cheques in all cases but for ₹ 10 lakhs which was paid in cash by M/s. Avon. These papers are self-explanatory and the payments are duly accounted in the books of account of various concerns. The said paper does not represent any unaccounted income of the company. More over, the statement on oath nowhere deals with the said loose paper under consideration.- Decided in favour of assessee Unaccounted transaction with Shri G. S. Khator - Held that - Before the Commissioner of Income-tax (Appeals), it was submitted that the assessee and its group concerns had effected withdrawals from the accounted bank accounts from which a payment of ₹ 7 lakhs was made to Mr. G. S. Khator, an employee of the assessee and no action was ini tiated against the third parties till date. Before us also the assessee reiterated the submissions made before the learned Commissioner of Income-tax (Appeals) and the said paper does not represent any unaccounted income of the company.- Decided in favour of assessee by way of remand. Investment in immovable properties - CIT(A) deleted part addition - Held that - Considering the submissions and the fact that all other properties were accepted, there is prima facie evidence that the contention of the assessee is correct. Moreover, the shares of Eltrol was not acquired by the assessee-company or director. Therefore the addition cannot be made just because the documents was seized. Considering that all other properties were verified and accepted, we do not see any reason to sustain the addition when there is no evidence that the said property belongs to the assessee. The addition is deleted. - Decided in favour of assessee. Seizure of shares - Held that - We are unable to sustain the action of the Assessing Officer. Instead of making addition in the hands of shareholder, in this case the assessee is not shareholder, the addition was made without any enquiry. Just because the share certificates were seized from the company the addition cannot be made. The assessee discharged his onus of explaining the ownership to director and reason they are found in the assessee' s possession. These are not disproved. We are of the opinion that the addition cannot be made in the hands of the assessee.- Decided in favour of assessee. Sale and lease back of non-genuine assets - CIT(A) deleted addition on admitting additional evidence - Held that - Considering the rival contentions and the nature of transactions undertaken and consistent with the stand taken on these transactions we see no reason to interfere with the order of the Commissioner of Income- tax (Appeals). Such profits are to be excluded and the quantum of addition on account of bogus lease rent and depreciation has to be reduced by the bogus profits - Decided against revenue. Investment in shares and fixed assets of Oxcamb Investment P. Ltd. - CIT(A) deleted addition - Held that - Commissioner of Income-tax (Appeals) has verified the loose papers and the facts has been verified. OIL acquired shares under RBI approval from persons other than company. Similar addition in Homi R. Patel deleted by the Income-tax Appellate Tribunal in Appeal No. IT(SS)A 645/Mum/2004 vide pages 25 to 27. OIL, a company incorporated in Mauritius on March 1, 1995 had obtained a permission from RBI for purchase of shares from some of the shareholders of the company REPL which was granted by the RBI. The investment was made by the said OIL out of borrowings from Taib Bank, Bahrain. Therefore question of treating the investment as the assessee' s income that too as undisclosed does not arise. - Decided against revenue. Unaccounted deposit from Kamalkant Chotalal - CIT(A) deleted addition - Held that - As it was correctly held by the Commissioner of Income-tax (Appeals) that the documentary evidence available which has been taken as the basis by the Assessing Officer for making addition show that the said concern had advanced the amount and on account of failure of the assessee to repay it had initiated the proceedings under the Negotiable Instruments Act. There was no basis for the Assessing Officer to hold that the amount represented to undisclosed income of the assessee-company. - Decided against revenue. Unaccounted payment to PEIL and NILA - CIT(A) deleted addition - Held that - Since it is also a factual issue which was examined by the learned Commissioner of Income- tax (Appeals) to hold he Act itself provides for taxation of any undisclosed income in the hands of any person other than in whose name authorisation of search has not been issued. Further as the authorised representative produced confirmation letter from the said companies that the payments are duly recorded in the books of the respective companies, he deleted the same, we do not see any reason to accept the Revenue's ground - Decided against revenue. Unaccounted remittances from Oxcamb Investment Ltd. - CIT(A) deleted addition - Held that - We do not see any reason to modify the well-reasoned order of the Commissioner of Income-tax (Appeals) as the learned Commissioner of Income-tax (Appeals) has verified the loose papers and deleted on facts. Shares were never issued to Oxcamb nor any money was received by REPL from Oxcamb. Addition of ₹ 27 crores also made on the same grounds of alleged investment by OIL as per ground No. 2 was also deleted. Further copy of the loose paper in fact seized by the search party which was mate rial for addition was always in possession of the learned Assessing Officer and this was considered by the Commissioner of Income-tax (Appeals). - Decided against revenue. Unaccounted interest component - CIT(A) deleted addition - Held that - There is no need to disturb the finding of the Commissioner of Income-tax (Appeals). As submitted the interest was otherwise also dis allowed. Since the issue of allowing interest was restored to the Assessing Officer in the assessee' s appeal, this aspect of double disallowance can also be examined by the Assessing Officer - Decided against revenue. Disallowance of consultancy charges - CIT(A) deleted addition - Held that - The learned Commissioner of Income-tax (Appeals) held that it is evident that certain services were rendered by ASIS Overseas P. Ltd. for procuring of advance licence for which the payment has been made. There is nothing in the incriminating document to show that the services have not been rendered warranting the disallowance of the payment in the block assessment proceeding. Since issue was examined on facts and findings of the Commissioner of Income-tax (Appeals) are found to be based on documents seized and claims in the earlier years, we reject the ground raised by the Revenue. - Decided against revenue. Unaccounted receipt from Bharat Vijay Mills - CIT(A) deleted addition - Held that - As from the perusal of the cheque which was forming part of the incriminating document, it is evident that M/s. Bharat Vijay Mills is a division of M/s. Sintex Industries Ltd., therefore where the payment is duly accounted for in the bank statement furnished, there is no basis for retaining addition on this account as the undisclosed income of the assessee. Addition made by the Assessing Officer was also devoid of any merit. The learned Commissioner of Income-tax (Appeals) examined the seized material and rightly deleted the addition. - Decided against revenue. Unaccounted payment received - CIT(A) deleted addition - Held that - Before the Commissioner of Income-tax (Appeals) it was held that the company had raised various ICD' s from other companies and individuals. Such deposits have been duly accounted for by the assessee-company in its regular books of account. Copies of account were filed in the course of the assessment proceedings. Since the entries were recorded, there is no case for making addition on this account to the undisclosed income. The learned Commissioner of Income-tax (Appeals) held that there is a merit in the claim considering the evidences produced. In the circumstances, there remains no basis for sustaining the addition - Decided against revenue. Unaccounted payment to Runners Corporation - CIT(A) deleted addition - Held that - The learned Commissioner of Income-tax (Appeals) correctly held that apparently the payment made was duly accounted in the regular books of account of the assessee-company. Therefore, the addition made to the undisclosed income on this account cannot be sustained and deleted the addition. - Decided against revenue. Addition on difference of stock based on seized documents - CIT(A) deleted addition - Held that - Before the CIT (A) it was stated that a statement duly typed for October, 1997 was furnished to the bank indicating the value of the stock of ₹ 3339.41 lakhs which was duly acknowledged by the bank which does not contain any handwritten corrections unlike the loose papers. Subsequently when it came to furnishing the statement of stock tally for November, 1997 the statement for October, 1997 was taken as the basis for preparing November, 1997 tally. In doing so, the typewritten figures were struck off by hand and the figures for November, 1997 were put by hand. A comparison of the two will very clearly explain that there was no difference in the stock tally. These figures represented value of stocks for two different months. The Assessing Officer himself has accepted and acknowledged the position wherein the stock tally for two different months were bound to be different. Hence it was now known why in the final analysis he treated the loose papers as representing undisclosed income.- Decided against revenue. Unaccounted investment in immovable property - CIT(A) deleted part addition - Held that - We uphold the order of the Commissioner of Income-tax (Appeals) as observed that except for the property being W-163 MIDC Dombivali, the ownership of remaining properties stands established and no addition on this account can be sus tained. Consequently out of ₹ 20 crores added to the undisclosed income, the addition of ₹ 50 lakhs is retained and balance of ₹ 19.50 crores was deleted.. In fact, the Assessing Officer him self verified and accepted the properties as accounted for either in the assessee' s books or its related concerns. The learned Commissioner of Income-tax (Appeals) gave detailed reasons while deleting all but one which was sustained by him. There is no reason to contest by the Revenue this issue on merits. - Decided against revenue.

Summary

Issues Involved:
1. Jurisdiction for completing the assessment in the block assessment.
2. Making additions in the block assessment.
3. Set off of business losses.
4. Set off of depreciation on unabsorbed depreciation.
5. Set off of lease rents.
6. Disallowance of lease rent and depreciation on non-existing assets.
7. Addition on account of investment in the equity capital of the company by Oxcamb Investment Ltd.
8. Addition on account of investment in immovable properties.
9. Addition based on certain seized materials.
10. Disallowance of interest on borrowings from financial institutions.
11. Rejection of contention of claim of losses.
12. Admission of additional evidence in violation of rule 46A.

Detailed Analysis:

Jurisdiction for Completing the Assessment in the Block Assessment:
The assessee contested the jurisdiction for completing the assessment in the block period, arguing that the information obtained during the survey under section 133A could not be utilized in the block assessment. The Tribunal upheld this contention, stating that matters crystallized by inquiries made under section 133A cannot be considered as undisclosed income in the block assessment.

Making Additions in the Block Assessment:
The Tribunal emphasized that additions in the block assessment must be based on incriminating material found during the search. The Tribunal found that many of the transactions were already under inquiry before the search, and thus, could not be considered in the block assessment.

Set Off of Business Losses:
The Tribunal acknowledged that unaccounted losses must be set off against unaccounted income of the block period, as upheld in the case of B.D.A. Ltd. v. Asst. CIT [1998] 65 ITD 501 (Mumbai). The Tribunal directed the Assessing Officer to allow the set-off of such losses.

Set Off of Depreciation on Unabsorbed Depreciation:
The Tribunal held that the provisions of section 158BB(1) did not prohibit the set-off of unaccounted depreciation. The Tribunal directed the Assessing Officer to allow the set-off of unaccounted depreciation against the unaccounted income of the block period.

Set Off of Lease Rents:
The Tribunal found that the lease rent was paid by account payee cheque and was regularly allowed as a deduction in regular assessments. The Tribunal directed the Assessing Officer to reconsider the disallowance of lease rent in light of the evidence provided.

Disallowance of Lease Rent and Depreciation on Non-Existing Assets:
The Tribunal found that the disallowance of lease rent and depreciation on non-existing assets was based on inquiries made under section 133A before the search. The Tribunal directed the Assessing Officer to consider these disallowances in the regular assessment.

Addition on Account of Investment in the Equity Capital of the Company by Oxcamb Investment Ltd.:
The Tribunal upheld the Commissioner of Income-tax (Appeals)'s finding that the investment by Oxcamb Investment Ltd. was genuine, as it was made with the approval of the RBI and was funded by a loan from Taib Bank, Bahrain.

Addition on Account of Investment in Immovable Properties:
The Tribunal upheld the deletion of the addition of Rs. 19.50 crores by the Commissioner of Income-tax (Appeals), as the ownership of the properties was established. However, the addition of Rs. 50 lakhs for the property at W-163 MIDC Dombivali was sustained.

Addition Based on Certain Seized Materials:
The Tribunal found that many of the additions based on seized materials were not supported by evidence. The Tribunal directed the Assessing Officer to reconsider these additions in light of the evidence provided.

Disallowance of Interest on Borrowings from Financial Institutions:
The Tribunal found that the interest on borrowings was duly accounted for in the regular books of account and was allowed as a deduction in regular assessments. The Tribunal directed the Assessing Officer to reconsider the disallowance of interest.

Rejection of Contention of Claim of Losses:
The Tribunal upheld the assessee's contention that the losses incurred in the block period must be set off against the unaccounted income of the block period.

Admission of Additional Evidence in Violation of Rule 46A:
The Tribunal found that the Commissioner of Income-tax (Appeals) had admitted additional evidence in violation of rule 46A. However, the Tribunal upheld the findings of the Commissioner of Income-tax (Appeals) based on the additional evidence, as it was necessary to determine the undisclosed income in the block assessment proceedings.

Conclusion:
The Tribunal allowed the assessee's appeal for statistical purposes and dismissed the Revenue's appeal. The Tribunal directed the Assessing Officer to reconsider various additions and disallowances in light of the evidence provided and the legal principles stated above.