2013 (12) TMI 843 - HC - Income Tax

Revision u/s 263 - Challenge to the power of CIT on the ground that when the block assessment itself was made only after the approval of the Commissioner of Income Tax as required under Chapter XIV-B the self-same authority could not assume authority once again even as against the assessment years 1995-96 and 1996-97 on issues which were already subject matter of consideration in the block assessment. - Held that - the transactions were reflected in the books of accounts and they were all genuine transactions and that the order of the Tribunal on the block assessment appeal having become final the sole reliance on the findings in the block assessment thus not being available to the Revenue on merits we have no hesitation in holding that the Tribunal had committed serious error in not considering the facts in a proper perspective. It is rather ironical that the Tribunal ignored the findings of its own order in the block assessment appeal which clearly points out to the genuineness of the transactions and the disclosure of the transactions in the books of accounts and consequently on the sustainability of the claim on the depreciation which was also the subject matter of consideration in the block assessment. There is no material at all for the Commissioner of Income Tax to exercise his jurisdiction under Section 263 of the Income Tax Act to deny the assessee on the deduction as well as on the depreciation claim considered by the Assessing Officer in the assessment relating to the assessment years 1995-96 and 1996-97. - Decided in favor of assessee.

Summary

Issues Involved:
1. Jurisdiction under Section 263 of the Income Tax Act.
2. Validity of block assessment and regular assessment.
3. Genuineness of transactions and depreciation claims.
4. Principles of natural justice and procedural fairness.
5. Impact of prior Tribunal decisions on current proceedings.

Issue-wise Detailed Analysis:

Jurisdiction under Section 263 of the Income Tax Act:
The primary question was whether the Commissioner of Income Tax (CIT) was justified in exercising jurisdiction under Section 263 to revise the assessment orders for the years 1995-96 and 1996-97. The CIT believed that the Assessing Officer (AO) had erroneously allowed deductions for margin money and hire management fees, and granted 100% depreciation on assets acquired from M/s. Morgan Industries Ltd. The Tribunal upheld the CIT's jurisdiction, stating that block assessments and regular assessments are separate and that the CIT was justified in revising the AO's order if it was erroneous and prejudicial to the interests of the Revenue.

Validity of Block Assessment and Regular Assessment:
The block assessment covered the period from 01.04.1986 to 03.07.1996 and was made under Chapter XIV-B of the Income Tax Act. The Tribunal had previously annulled the block assessment, holding that there was no undisclosed income, and that the transactions were reflected in the books of accounts. The CIT's revision under Section 263 was based on findings from this block assessment. The High Court noted that the Tribunal's earlier decision on the block assessment had become final and that the CIT could not rely on the same findings to justify the revision.

Genuineness of Transactions and Depreciation Claims:
The CIT questioned the genuineness of the buy and lease back transactions and the validity of the depreciation claims. The block assessment had previously held some transactions as genuine and others as not. The Tribunal's majority view in the appeal against the block assessment was that the transactions were genuine and reflected in the books of accounts. The High Court emphasized that the Tribunal had already settled the issue of genuineness and the depreciation claim, making it inappropriate for the CIT to revisit these issues under Section 263.

Principles of Natural Justice and Procedural Fairness:
The assessee argued that the block assessment was annulled due to a violation of natural justice, as they were not given a fair opportunity to question third parties. The Tribunal had agreed with this, stating that the assessment was unsustainable both on merits and due to the denial of a fair hearing. The High Court reinforced that the procedural fairness issues had been addressed in the Tribunal's earlier decision, which had become final.

Impact of Prior Tribunal Decisions on Current Proceedings:
The High Court highlighted that the Tribunal's earlier decision on the block assessment, which annulled the assessment due to lack of undisclosed income and procedural unfairness, was final and binding. The CIT's reliance on the block assessment findings to justify the revision under Section 263 was therefore misplaced. The High Court concluded that there was no material basis for the CIT to exercise jurisdiction under Section 263, given the finality of the Tribunal's earlier decision.

Conclusion:
The High Court set aside the Tribunal's order, holding that the CIT had no material basis to exercise jurisdiction under Section 263 to deny the assessee's deductions and depreciation claims for the assessment years 1995-96 and 1996-97. The appeals were allowed, and the Tribunal's decision was overturned.