2011 (3) TMI 1430 - HC - Income Tax

Whether the appellate tribunal is right in law and on facts in holding that since amount has been taxed in the regular assessment made under section 143(3) it should not be taxed on protective basis in the block assessment Held that - Tribunal has deleted the addition which had been made on a protective basis only on the ground that the said amount had been added in the regular assessment under section 143(3) for the assessment year 1993-94. It is an admitted position that against the regular assessment order made under section 143(3), the assessee had preferred appeal. In the circumstances, the Tribunal was not justified in setting aside the addition made on a protective basis without ascertaining the outcome of the addition which was made on a substantive basis Whether the appellate tribunal is right in law in holding that to the entries in the books of account of the assessee, provisions of section 68 are not attracted Held that - Tribunal had erred in not appreciating that the entries were self-serving entries purporting to explain the source of cash credit and could not have been treated as explained, Tribunal has not recorded any factual findings and has accepted the claim of the assessee merely on the basis of the entries in the bank accounts of the parties, maintained by the Indian Bank. This Court is of the view that without recording any findings of fact in connection with the said issue, the Tribunal was not justified in deleting the addition made under section 68 of the Act

Summary

Issues:
1. Challenge to order by appellant revenue under section 260A of the Income Tax Act, 1961 related to block period 1st April, 1985 to 8th September, 1995.
2. Questions related to taxation of specific amounts and applicability of section 68.

Analysis:
1. The appellant revenue challenged the order passed by the Income Tax Appellate Tribunal regarding block assessment for a specific period. The Tribunal had questioned the taxation of certain amounts and the applicability of section 68 of the Income Tax Act, 1961.

2. The assessment period under review was from 1986-87 to 1995-96. The Assessing Officer noted discrepancies in the financial records of the assessee related to amounts received from Food-O-Mec Machinery. The Tribunal found that the additions made by the Assessing Officer were unjustified as there was no undisclosed income. The Tribunal held that certain amounts had already been taxed in regular assessments and should not be taxed again on a protective basis during block assessment.

3. The Tribunal also examined a loan amount of Rs.33,28,000/- received by the assessee and found that the transactions were supported by entries in bank accounts. Despite suspicions about the genuineness of the transactions, the Tribunal concluded that the entries were explained for the limited purpose of section 68 of the Act. The Tribunal emphasized that it was not concerned with legal implications in other appeals and deleted the addition made under section 68.

4. The appellant contended that the Tribunal erred in not considering the merits of the case and in disregarding the principle of protective assessment. The appellant argued that the Tribunal should have waited for the outcome of pending appeals before making a decision. The respondent, however, supported the Tribunal's order as just and legal.

5. The High Court observed that the Tribunal had prematurely deleted the additions without waiting for the outcome of pending appeals related to regular assessments. The Court also noted that the Tribunal had not provided factual findings to support the deletion of the additions made under section 68. Consequently, the High Court remanded the matter back to the Tribunal for fresh consideration after ascertaining the outcomes of pending appeals and recording additional facts.

6. Therefore, the High Court allowed the appeal to the extent of quashing and setting aside the Tribunal's order, restoring the appeal to the Tribunal for a fresh decision after considering the observations made by the High Court.