2023 (4) TMI 580 - HC - Income Tax

Block assessment - Addition in hands of assessee on protective purpose - linkage of the assessee s undisclosed income as disclosed in the block return and the transactions in the bank account of PEL and KEW - as per Tribunal AO in the original block assessment made in the year 1998 has made substantive addition in the hands of Shaw Wallace and since the case of Shaw Wallace has been remanded back to the assessing officer for reframing the block assessment and other assessments, the addition made on the assessee was on protective basis - HELD THAT - Order passed by the tribunal elaborate exercise has been done by the tribunal to examine the details produced by the assessee to return a finding of fact that the money has been transferred to the two entities are from the bank accounts of the two said persons. Thus, the tribunal rightly concluded that the protective assessment was not warranted in the hands of the assessee because the assessee has been able to discharge the onus for showing the nature and source of credit entries in the bank account of KEW, PEL as well as, in the bank accounts of N.C. Jain and P.L. Mittal which in turn are sourced from Shaw Wallace and its subsidiaries. As evident that the source of money for Shaw Wallace and subsidiaries was in turn from ICDS which promoted the assessing officer to disallow in the hands of Shaw Wallace interest expenditure to the tune of Rs. 67.65 crores and therefore the addition to the tune of Rs. 12.41 crores made in respect of credit entities in the bank accounts of the two entries are unjustified and rightly directed the same to be deleted. Thus, we find that the tribunal after verifying and examining the factual position has granted relief to the assessee and the revenue has failed to make out a case to set aside the order passed by the tribunal. Substantial questions of law are answered against the revenue.

Issues Involved:

1. Justification of the Tribunal in negating the findings of the Second Assessing Officer.
2. Justification of the Tribunal in replacing the opinion of the Second Assessing Officer regarding cash withdrawals from bank accounts with its own opinion.

Summary:

Issue 1: Justification of the Tribunal in Negating the Findings of the Second Assessing Officer

The High Court examined whether the Tribunal was justified in setting aside the second assessment order by countering the findings of the Second Assessing Officer with those of the First Assessing Officer. The court noted that the original block assessment order dated 27.02.1998 had made an addition of Rs. 11.86 crores on a protective basis, treating the withdrawals from the bank accounts of M/s. Pragati Engineering Limited (PEL) and M/s. Kalo Engineering Works Limited (KEW) as undisclosed income of the assessee. The Tribunal had set aside this order on 08.10.1999, directing the Assessing Officer to re-examine the facts and developments in the block assessment of Shaw Wallace.

Upon reassessment, the Second Assessing Officer made a substantive addition of Rs. 12.41 crores. The Tribunal, in its order dated 31.03.2005, dismissed the appeal, but this was later set aside by the High Court on 11.03.2020, directing the Tribunal to re-determine the appeal. The Tribunal, in the impugned order, allowed the appeal, noting that the Second Assessing Officer could not alter the protective assessment as there were no changes in the findings of Shaw Wallace's reassessment.

The High Court upheld the Tribunal's decision, emphasizing that the Second Assessing Officer's actions exceeded the specific directions given by the Tribunal in 1999. The court found that the Tribunal was correct in concluding that the Second Assessing Officer reviewing his own order was beyond his jurisdiction.

Issue 2: Justification of the Tribunal in Replacing the Opinion of the Second Assessing Officer

The High Court also examined whether the Tribunal was justified in replacing the Second Assessing Officer's opinion regarding the withdrawal of cash from the bank accounts of PEL and KEW with its own opinion. The Tribunal found that the Second Assessing Officer failed to consider crucial evidence, including bank statements, charts, and statements recorded under Section 131 of the Act, which showed that the money in the bank accounts of PEL and KEW came from Shaw Wallace through N.C. Jain and P.L. Mittal.

The Tribunal noted that the Second Assessing Officer did not cross-verify the claims with the bank statements from Syndicate Bank, which could have easily been done. The Tribunal concluded that the protective assessment was not warranted as the assessee had discharged the onus of proving the source of the credit entries.

The High Court supported the Tribunal's findings, stating that the Tribunal rightly concluded that the addition of Rs. 12.41 crores was unjustified. The court found that the Tribunal's decision was based on a thorough examination of the factual position and that the revenue failed to make a case to set aside the Tribunal's order.

Conclusion:

The High Court dismissed the appeal filed by the revenue and answered the substantial questions of law against the revenue, upholding the Tribunal's decision to allow the assessee's appeal and set aside the second assessment order.

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