2001 (4) TMI 926 - AT - Income Tax

Summary

Issues Involved:
1. Applicability of Section 158BC of the IT Act, 1961.
2. Computation of undisclosed income for the block period.
3. Addition of Rs. 25 lakhs under Section 69C of the IT Act.
4. Lease transactions with PSEB and RSEB.
5. Liability for interest under Section 158BFA(1) of the IT Act.
6. Chargeability of surcharge on the tax rate of 60% on undisclosed income.

Detailed Analysis:

1. Applicability of Section 158BC of the IT Act, 1961
The assessee argued that the CIT(A) erred in holding that the provisions of Section 158BC were applicable to their case. However, this ground was not pressed at the time of hearing and was accordingly rejected.

2. Computation of Undisclosed Income for the Block Period
The assessee contended that the CIT(A) erred in confirming the AO's action of computing undisclosed income at Rs. 11,89,89,975 against the declared nil income. This issue was addressed in the context of specific additions and disallowances discussed in subsequent grounds.

3. Addition of Rs. 25 Lakhs under Section 69C of the IT Act
The AO added Rs. 25 lakhs to the total income under Section 69C based on documents found during a search, indicating unaccounted payments to National Plastic Industries Ltd. The CIT(A) upheld this addition, but the Tribunal found that the AO failed to examine key individuals and the recipient company to confirm the cash payment. The Tribunal noted that the assessee had provided explanations and confirmations from National Plastic Industries Ltd. and held that the addition should be deleted. It was also ruled that if the addition was to be confirmed, it should be allowed as a business expenditure under Section 37(1) of the IT Act.

4. Lease Transactions with PSEB and RSEB
The AO disallowed depreciation claimed by the assessee on assets leased to PSEB and RSEB, treating the transactions as financial arrangements rather than genuine leases. The CIT(A) concurred with this view. However, the Tribunal found that the transactions were genuine sale and lease-back arrangements. The Tribunal relied on various judicial precedents and CBDT circulars, noting that the assets were identified, existed, and were accounted for by both parties. The Tribunal allowed the depreciation claim, holding that the assessee was the owner of the assets and entitled to depreciation.

5. Liability for Interest under Section 158BFA(1) of the IT Act
The CIT(A) held that the assessee was liable for interest under Section 158BFA(1) due to the late filing of the return. However, the Tribunal found that the return was filed within the extended period granted by the AO and directed the deletion of the interest.

6. Chargeability of Surcharge on the Tax Rate of 60% on Undisclosed Income
The AO charged a surcharge on the tax rate of 60% on undisclosed income. The CIT(A) upheld this, but the Tribunal noted that the relevant assessment year was 1998-99, for which no surcharge was leviable as per Part III of the First Schedule of the Finance Act, 1997. The Tribunal directed the deletion of the surcharge.

Conclusion
The Tribunal allowed the appeal partly, deleting the additions under Section 69C, allowing depreciation on leased assets, and directing the deletion of interest and surcharge. The Tribunal upheld the applicability of Section 158BC but found no need for further discussion on general grounds.