2016 (2) TMI 89 - AT - Income Tax

Disallowance of depreciation - whether the same amount has been disallowed under block assessment proceedings and was assessed as undisclosed income thus the disallowance of depreciation is wrong? - Held that - The settled legal proposition is that the block assessment and regular assessment are two different assessment proceedings and they will run parallelly. The items that are required to be considered in the block assessment cannot be considered in the regular assessment proceedings and vice versa. Hence the items which have been assessed as undisclosed income in block assessment proceedings cannot be considered/assessed in regular assessment proceedings. According to the Ld A.R the disallowance of depreciation of 1.36 crores has been assessed as undisclosed income in the block assessment proceedings. Hence the AO cannot assess the same again in the regular assessment proceedings. However these factual aspects require verification. Accordingly we set aside this issue to the file of the AO with the direction to examine this claim of the assessee and take appropriate decision in accordance with the law in the light of discussions made supra. Disallowance of Machinery purchase - Held that - We notice that the assessee has claimed that it has declared the sales of films picturised by using the films of 1.04 crores referred above. There should not be any doubt that the pictures could not be produced without the use of films and if the sale of pictures is assessed then the corresponding expenditure should be allowed. Even though the assessing officer has considered the sales also as bogus he did not exclude the value of sales from the income of the assessee. Since the purchase of films have not been proved by the assessee we are of the view that this issue should be settled by disallowing some portion of the purchases in order to take care of the deficiencies in the purchase claim. Accordingly we direct the assessing officer to disallow 20% of the film cost of 1.04 crores since the assessing officer has assessed the sale of pictures. We order accordingly. Disallowance of Expenditure related to bogus sales - Held that - We agree with the contentions of the assessee that the same is beyond the scope of the set aside proceedings. As noticed earlier though the assessing officer has taken the view that the sale of pictures also is bogus one he has not eliminated the same from the total income of the assessee. Accordingly we are of the view that there is no reason to disallow the expenses arrived on a proportionate basis. Accordingly we direct the AO to delete this disallowance Disallowance of finance charges - Held that - It is not clear as to how the assessee could obtain hire purchase finance facility on the non-existing machineries. If the assessee has actually obtained the hire purchase finance then the question arises about its utilisation. If the loan obtained has been used by the assessee for business purposes we are of the view that the finance charges are allowable as deduciton as the hire purchase finance is only one of the modes of raising loans. Hence in our view this issue requires fresh examination. Accordingly we set aside the order of Ld CIT(A) on this issue and direct the AO to examine the manner of utilization of loan availed from the finance companies Disallowance of depreciation - Held that - In the earlier paragraphs the assessee has claimed that the above said sum of 1.36 crores was assessed as undisclosed income of the assessee in the block assessment proceedings. If the said claim is found to be correct then there is no requirement of adding the same in the regular assessment proceedings. If it is not found to be correct then it is the responsibility of the assessee to show that the difference amount of 0.32 crores (1.36 less 1.04) represents the value of machinery on which 100% depreciation is allowable. Further it is also the responsibility of the assessee to show that the machineries worth 0.32 crores was actually purchased. Accordingly this issue is also set aside to the file of the AO with the direction to examine the same afresh.

Summary

Issues:
1. Scope of assessment in set aside proceedings.
2. Scope of assessment of items assessed in block assessment order.

Analysis:
1. The appellant challenged the order passed by Ld CIT(A) confirming various additions made by the assessing officer, including disallowance of depreciation and other expenditures. The Ld CIT(A) set aside the matter for reassessment due to a change in the appellant's claim. The appellant contended that the assessing officer exceeded his jurisdiction in making new additions in the set aside proceedings. The Tribunal agreed with the appellant, citing the principle that the assessing officer cannot go beyond the scope of the set aside order. The Gujarat High Court decision in Saheli Synthetics P Ltd Vs. CIT was referred to support this position.

2. Another issue raised was the repetition of assessment of items already considered in block assessment proceedings. The appellant argued that the disallowance of depreciation had been made in the block assessment and should not be disallowed again. The Tribunal acknowledged the distinction between block assessment and regular assessment, directing the AO to verify the claim and make a decision in accordance with the law. The Tribunal emphasized that items assessed as undisclosed income in block assessments cannot be reassessed in regular assessment proceedings.

3. The scope of set aside proceedings was further contested by the appellant, claiming that certain additions made by the assessing officer were beyond the set aside scope. The Tribunal found that the disallowed amount for machinery purchase actually pertained to the purchase of films, which was considered in the set aside proceedings. However, the Tribunal directed the AO to disallow 20% of the film cost due to discrepancies. The Tribunal also disagreed with the disallowance of expenses and finance charges, directing the AO to delete these disallowances.

4. Regarding the disallowance of depreciation and related expenses, the Tribunal directed the AO to reexamine the issue, considering the appellant's claims and providing an opportunity for clarification. The Tribunal emphasized the need for thorough verification and examination before making any disallowances. Ultimately, the appeal of the appellant was treated as allowed for statistical purposes, with the decision pronounced on 6th Jan, 2016.