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2021 (9) TMI 339 - AT - Income TaxBlock assessment u/s. 158BC - undisclosed income of the assessee - addition of the credit entries in two bank accounts - addition on protective basis on the ground that the assessee had withdrawn cash from two bank accounts - Second AO jurisdiction to make the addition substantively in the hands of the assessee - appeal raised by the assessee before the Tribunal in second round - assessee challenges that the AO was wrong in making the addition in the second reassessment order of 2002 on a new issue which was not subject matter to the set aside assessment by the Tribunal - HELD THAT - It is common knowledge that after search u/s. 132 of the Act take place, the ADIT (Inv) files his Investigation Report taking into account, the seized material from all the searched persons/entities which throws light on the discovery of the unearthed undisclosed income of searched persons/entities and if the AO deviates from crucial aspects/facts the Ld. Pr. CIT/CIT would be expected to have stepped into by exercising his revisional jurisdiction u/s 263 of the Act, which has not happened in this case. So the First AO s action of only making protective assessment is more probable in the overall facts of the case and in all probability therefore, the same was added on a substantive basis in the hands of M/s SWC which fact could not have been disturbed in the facts discussed - Second AO could not have reviewed the order of his predecessor AO which power he does not enjoy. The action of the second AO to hold in the impugned order that no substantive addition was made in the hands of M/s. SWC for ₹ 11.86 cr. is clearly reviewing the order of the First AO and that action AO cannot do, but only the CIT/PCIT u/s 263 of the Act as per the Scheme of the Act is empowered to do; and this finding that no substantive addition of ₹ 11.86 crore was made in the hands of M/s SWC is contradicting as noted supra when in the same breath the Second AO notes that in the Second block re-assessment order of M/s SWC nothing was altered meaning status quo ante i.e. as it is without any change in the case of assessment of M/s SWC is concerned - Second AO did not enjoy the jurisdiction to make the addition substantively in the hands of the assessee Merits of the addition - Assessee has satisfactorily explained that the money has come from the coffers/bank accounts of M/s. SWC and its subsidiaries. And M/s SWC has funded it from ₹ 89.02 crores from ICDs of ₹ 219.77 crores, therefore AO in the block assessment of M/s SWC has disallowed interest expenditure of ₹ 67.65 crores alleging it to be for non-business purpose . Since substantive addition made originally in the hands of M/s SWC has been reiterated by the AO in its reassessment order dated 30.03.2000, the protective assessment was not warranted in the hands of assessee because the assessee has been able to discharge the onus of showing the nature and source of the credit entries in the bank accounts of M/s. Kalo and M/s. Pragati as well as in the bank accounts of Shri N. C. Jain and Shri P. L. Mittal which in turn are sourced from M/s. SWC and its subsidiaries; and it is evident that the source of money for M/s. SWC and subsidiaries was in turn from ICDs as discussed which prompted the AO to disallow in the hands of M/s. SWC the interest expenditure to the tune of ₹ 67.65 crores. Therefore, the addition to the tune of ₹ 12.41 crores made in respect of credit entries in the bank account of M/s. Kalo and M/s. Pragati are unjustified and, therefore, directed to be deleted. Thus, the assessee succeeds on the legal issue as well as on merits. - Decided in favour of assessee.
Issues Involved:
1. Jurisdiction of Assessing Officer (AO) in remand proceedings. 2. Competence of AO to make new additions in fresh block assessment. 3. Justification of Tribunal in upholding the addition of ?12.41 crores. 4. Nature and source of deposits in the bank accounts of M/s. Kalo and M/s. Pragati. Detailed Analysis: 1. Jurisdiction of Assessing Officer (AO) in Remand Proceedings: The Tribunal examined whether the AO had jurisdiction to make substantive additions on a new issue in the reassessment proceedings. The Tribunal noted that the AO was directed to re-examine the facts and developments in the block assessment of Shaw Wallace & Co. (SWC) and then frame a fresh assessment order for the assessee. The AO, in the original block assessment of 1998, had made a protective addition of ?11.86 crores in the hands of the assessee because a substantive addition was made in the hands of SWC. However, in the second reassessment order of 2002, the AO made a substantive addition of ?12.41 crores based on credit entries in the bank accounts of M/s. Kalo and M/s. Pragati. The Tribunal found that the AO exceeded his jurisdiction by making substantive additions on a new issue, which was not part of the original assessment. Therefore, the Tribunal held that the AO's action was not permissible and the reassessment order was bad in law. 2. Competence of AO to Make New Additions in Fresh Block Assessment: The Tribunal considered whether the AO was competent to make new additions on a new ground that was not part of the original block assessment. The Tribunal noted that the AO, in the second reassessment order, made a substantive addition of ?12.41 crores based on credit entries in the bank accounts of M/s. Kalo and M/s. Pragati, whereas the original block assessment was based on cash withdrawals from these accounts. The Tribunal held that the AO was not competent to make new additions on a new ground in the reassessment proceedings, as it was beyond the scope of the remand directions. Therefore, the Tribunal found that the AO's action was not justified. 3. Justification of Tribunal in Upholding the Addition of ?12.41 Crores: The Tribunal examined whether the addition of ?12.41 crores in the hands of the assessee was justified. The Tribunal noted that the AO, in the original block assessment, made a protective addition of ?11.86 crores because the substantive addition was made in the hands of SWC. In the reassessment proceedings, the AO made a substantive addition of ?12.41 crores based on credit entries in the bank accounts of M/s. Kalo and M/s. Pragati. The Tribunal found that the AO's action was not justified as the substantive addition was already made in the hands of SWC, and there was no further development in the block assessment of SWC. Therefore, the Tribunal held that the addition of ?12.41 crores in the hands of the assessee was not justified and directed to delete the addition. 4. Nature and Source of Deposits in the Bank Accounts of M/s. Kalo and M/s. Pragati: The Tribunal examined the nature and source of deposits in the bank accounts of M/s. Kalo and M/s. Pragati. The Tribunal noted that the deposits in these accounts were from the bank accounts of Shri N. C. Jain and Shri P. L. Mittal, who were benamidars of the assessee. The assessee provided bank statements and flow charts to show that the money came from SWC and its subsidiaries. The Tribunal found that the assessee satisfactorily explained the source of the deposits, and the AO's rejection of the evidence was not justified. Therefore, the Tribunal held that the addition of ?12.41 crores based on the credit entries in the bank accounts of M/s. Kalo and M/s. Pragati was unjustified and directed to delete the addition. Conclusion: The Tribunal allowed the appeal of the assessee, holding that the AO exceeded his jurisdiction in making substantive additions on a new issue in the reassessment proceedings. The Tribunal found that the addition of ?12.41 crores in the hands of the assessee was not justified, as the substantive addition was already made in the hands of SWC, and the assessee satisfactorily explained the source of the deposits. Therefore, the Tribunal directed to delete the addition of ?12.41 crores.
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