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TMI Blog2008 (4) TMI 519X X X X Extracts X X X X X X X X Extracts X X X X ..... "C" Bench (hereinafter referred to as "the Tri-bunal" for short) respectively in I. T. A. Nos. 794/Bang/2000 and 795/Bang/2000. The respondent-assessee is common in these two appeals and, though the appellant-Revenue has raised for our consideration and deci-sion as many as three substantial questions of law in I. T. A. No. 106 of 2004 and four such questions in I. T. A. No. 633 of 2004, one of them is common in both the appeals. These substantial questions of law are reframed without affecting the substance of each of them and they read as under : "(1) Whether on facts and in the circumstances of the case, the Income-tax Appellate Tribunal is justified in holding that the dis-allowances of depreciation as made by the Assessing Officer under section 143(3) of the Income-tax Act, 1961 in the respective orders of assessment on protective basis for the respective assessment years (1996-97 and 1997-98), are liable to be deleted on the ground that the same disallowances were the subject-matter of the block assessment order dated January 29, 1999, passed under section 158BC of the Act in respect of the same assessment years ? (common question in both the appeals). (2) Whether on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lated to refusal to grant certain other reliefs, the assessee filed its further appeal before the Tribunal in I. T. A. No. 794/Bang/2000. The Tribunal by passing the impugned order, allowed the said appeal granting further reliefs to the assessee. It is this order which is challenged in the present appeal. 3. Stated in a nutshell, the facts leading to the appeal in I. T. A. No. 633 of 2004 are as under : (i) The respondent-assessee filed its return of income on November 29, 1997 for the assessment year 1997-98 disclosing loss of Rs. 18,23,58,670. It was processed under section 143(1)(a) of the Income-tax Act (hereinafter referred to as "the Act"). After disallowing certain claims of the assessee with regard to the depreciation, provision for doubtful debts, provision for contingencies and supply items and after making certain additions based on the search which was conducted on January 3, 1997, in the premises of the assessee, the Assessing Officer passed the assessment order dated March 16, 2000 determining the taxable income at Rs. 17,31,20,662 as against the loss of Rs. 18,23,58,670 shown by the assessee in its returns. (ii) Aggrieved by the said order of assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wances. As against this, Sri D. L. N. Rao, the learned counsel for the respondent-assessee vehemently contended that though the concept of protective assessment has been recognised by various High Courts and the hon'ble Supreme Court, there could not be such an assessment in respect of the very same assessee and as to the very same amount of income assessed in the block assessment on the ground that it was undisclosed one. 6. It is not in dispute that a search was commenced in the premises of the assessee on January 3, 1997, and it came to be concluded on February 28, 1997, and, during the said search, the authorities found and seized certain documents pertaining to the assets in respect of which depreciation was claimed by the assessee in the previous years falling within the block period besides being relevant to the assessment years 1996-97 and 1997-98. It is also not in dispute that based on the said documents the assessing authority concluded the block assessment for the block period comprising of the previous years 1991-92 to 1996-97 and passed the block assessment order dated January 29, 1999, and this order was challenged by the assessee initially before this court by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k assessment order has been disallowed on a protective basis. 8. As to the disallowance of a sum of Rs. 17,31,20,622 for the assessment year 1996-97, the Commissioner of Income-tax (Appeals) has observed at paragraph 5 of his order as : "the contention that protective assessments are not permissible in law does not appear to be correct, protective assess-ments do create the possibility of double assessment of the same income, may be in the hands of two persons, or in the hands of the same person but its effect is only temporary and only for a limited purpose, i.e., to ensure that the interest of the Revenue in ensuing that the income to be assessed is not left unassessed and ultimately only one assessment of the same income is going to stand, and there would be no double assessment". He has further observed at paragraph 11 on page 34 of his order that in case the block assessment is held to be null and void by the hon'ble High Court there would not be any case of double assessment of the wrong claim of depreciation (once in block assessment and then in regular assess-ment) and the disallowance of depreciation in regular assessment made on a protective basis would become regul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll) which was also considered by the Com-missioner of Income-tax (Appeals), it is observed by the hon'ble High Court of Allahabad as under (headnote) : "It is settled that when there is a doubt as to which person amongst the two was liable to be assessed, parallel proceedings may be taken against both and alternative assessments may also be framed. It is also equally true that while a protective assessment is permissible, it is not open to the income-tax appellate authorities constituted under the Act to make a protective order. The law does not permit assessment of the same income successively in different hands. The tax can only be levied and collected in the hands of the person who has really earned the income and is liable to pay tax thereon." 14. On a careful reading of the above observations, it could be noticed that the assessment of the same income on protective basis was made in the said case in respect of two different persons on the ground that there was doubt as to which of the two persons therein was liable to be assessed and the Tribunal, after considering both the assessment orders, had upheld one of them by cancelling the other. But the same is not in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by B or by both together, it would be open to the income-tax authorities to determine the question who is responsible to pay tax by taking assessment pro-ceedings both against A and B." 18. Suffice to say that for the reasons stated supra in respect of the obser-vations of the hon'ble High Courts of Allahabad and Gauhati in first and second of the decisions referred to above, these observations of the hon'ble Supreme Court are also not applicable to the facts of this case. 19. In the fourth of the above decisions relied upon by the learned senior counsel for the appellant-Revenue, viz., N. R. Paper and Board Ltd. v. Deputy CIT [1998] 234 ITR 733 (Guj), the facts narrated on page 734 of the judgment were as under : "There was a search and seizure operation in the case of the asses-sees and the block assessment under Chapter XIV-B of the said Act was made for the block period from April 1, 1985, till January 6, 1996,which included the assessment year 1995-96. In those proceedings, the total income of the assessees for the said period was worked out in accordance with the provisions of section 158BB of the Act and after giving credit for the amount disclosed, the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvations it is clear that the said observations cannot be made applicable to the facts of the present cases inasmuch as the block assessment has been made under Chapter XIV-B and the protective assessments have been made under Chapter XIV (i.e., section 143) of the Act as regular assessments and, both the block assess-ment and regular assessment have been made in respect of the same asses-see. 22. In support of its findings that the same amount of disallowance on depreciation relating to the block period could not be simultaneously assessed in the regular assessments in relation to the same previous years which fell within the block period, the Tribunal has referred to in its impugned orders the provisions of section 158BA of the Act including Explanation (c) to sub-section (2) of section 158BA. The said provisions read as under: "158BA. Assessment of undisclosed income as a result of search.-(1) Notwithstanding anything contained in any other provisions of this Act, where after the 30th day of June, 1995, a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A in the case of any person, then, the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned orders do not call for any interference in these appeals. Consequently, substantial question No. 1 pertaining to "protective assessment" which is common in these two appeals requires to be answered in the "affirmative" and against the appellant-Revenue. 24. The second substantial question of law pertains to "provision for bad and doubtful debts". The assessee had claimed for the assessment year 1996-97 allowance of a sum of Rs. 85,88,515 as provision for bad and doubtful debts and for the assessment year 1997-98 he had also claimed such allowance to the tune of Rs. 10,36,92,864 which is inclusive of a sum of Rs. 1,17,61,000, which has been "written off" during the relevant pre-vious year. The Assessing Officer allowed this sum of Rs. 1,17,61,000 which had been "written off" and disallowed the claim for Rs. 9,18,21,864 for the assessment year 1997-98 and nothing is mentioned in the assessment order as to the claim of the assessee for Rs. 85,88,515 for the assessment year 1996-97. When the said disallowance was challenged before the Com-missioner of Income-tax (Appeals) in the appeal filed by the assessee, the Commissioner of Income-tax (Appeals) confirmed the same. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o find the issue involves a sub-stantial disallowance ; final opportunity must be given to the assessee to file the details. In view of this we set aside the issue and send it back to the Assessing Officer with a direction to reconsider the entire issue afresh after calling for the details required to consider the claim. The assessee shall also furnish such details as may be called by the Assessing Officer. In case the assessee fails to furnish the complete details even after reasonable opportunity claim for provision may be disallowed. However, in such event the Assessing Officer shall allow the claim for the bad debts in any subsequent year where the claim is ascertained and crystallised." 27. As to the opportunity given to the assessee by the Assessing Officer for furnishing the details in respect of its claim on provision for bad and doubtful debts the Commissioner of Income-tax (Appeals) has observed at paragraph 13 on page 20 of his order as under : "The assessee has claimed the amounts debited to the profit and loss account as bad debts written off as well as provision for `doubtful debts and advances' are items eligible for deduction under section 36(1)(vii). Thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interfere with these concurrent findings recorded by the Commissioner of Income-tax (Appeals) and the Tribunal in their respective orders. There-fore, we have to answer this second substantial question of law in the "affirmative" and "against the appellant-Revenue". 29. The third and fourth substantial questions of law as framed above per-tain to deletion of disallowance of the claim of the assessee for the assess-ment year 1997-98 to the tune of Rs. 1,10,53,509 and allowance of addi-tional claim of the assessee for Rs. 2,46,04,418 for the same assessment year that was made by the assessee before the Tribunal for the first time (which is the subject-matter of I. T. A. No. 633 of 2004) in respect of the increased liability of the assessee due to exchange fluctuations. The said disallowance was made by the assessing authority on the ground that the same has been "capital in nature" but not "revenue in nature" as con-tended by the assessee and this disallowance had been confirmed by the Commissioner of Income-tax (Appeals). 30. The case of the assessee-company is that in pursuance of the agreement dated December 31, 1994, that was entered into by it with Common Wealth Deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt was not so claimed either before the Assessing Officer or before the Commissioner of Income-tax (Appeals). 32. Per contra Sri D. L. N. Rao, senior counsel, representing the respon-dent-assessee in I. T. A. No. 633 of 2004 contended that since the very business of the assessee-company has been that of hire purchase, leasing of assets and intercorporate deposits, etc., the said loan in foreign currency was availed of by the assessee for financing the purchase of the assets for the purpose of leasing as part of its business and, therefore, the said amount of increased liability incurred by the assessee as a result of exchange fluctuations was rightly held by the Tribunal as revenue in nature and hence the impugned order so far as it relates to the deletion of dis-allowance of this amount does not call for any interference in this appeal. As to the additional claim of the assessee for Rs. 2,46,04,418 allowed by the Tribunal though the said claim was made by the assessee for the first time before the Tribunal, the learned counsel for the respondent-assessee con-tended that the assessee was not prohibited under law from claiming the said amount as allowance for the first time be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re was debited to the profit and loss account. The profit and loss account was also debited with the net loss on forward cover aggre-gating to Rs. 3,36,982." 35. In the extract of the statement showing the accounting for exchange fluctuation which is found at page 63 of the paper book, the assessee has shown that exchange fluctuation relating to leased assets to the tune of Rs.2,46,04,418 (which was claimed as additional allowance before the Tri-bunal for the first time) was capitalised and a sum of Rs. 1,07,98,149 which has been claimed as deduction has been shown to be the exchange fluc-tuation relating to "stock on hire" debited to the profit and loss account. 36. In this regard, the assessing authority has observed at paragraph 16 of his order that a part of the exchange fluctuations has been capitalised and the balance portion has been debited to the profit and loss account stating that such an exchange fluctuation relates to stock on hire and that although section 10 of the agreement between the assessee-company and the CDC speaks of the manner in which the leasing and hire purchase business of the assessee-company has to be conducted, there is no direct link betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals), the Tribunal has made only a single paragraph discussion at paragraph 6.5 of its order from which it is apparent that the Tribunal has not at all applied its mind to the above concurrent findings of the assessing authority and the Commissioner of Income-tax (Appeals) and the view taken by the Tribunal that section 43A of the Act is not appli-cable to this issue is quite contrary to the very case of the assessee as borne out from the records inasmuch as, one Sri R. Shivakumar, the manager, taxation and accounts section of the assessee-company has stated in his letter dated March 10, 2000 as : "the exchange fluctuations attributed to loan used for acquiring leased assets was added to the cost of asset as per section 43A of the Act. 39. Further, though the Tribunal has stated in its impugned order as : "for these reasons we hold that section 43A is not applicable for the issue before us", it is quite apparent from the impugned order that no reason whatsoever is assigned by the Tribunal supporting this view. Furthermore, the observation of the Tribunal that "funds borrowed were utilised for the purpose of regular finance business carried on by the assessee" is also not su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assess-ing authority on protective basis in the respective assessment orders do not call for any interference in these appeals. 42. Further, we answer the second substantial question of law pertaining tothe disallowance on provision for bad and doubtful debts in the "affir-mative" and against the appellant-Revenue holding that the Tribunal isquite justified in remanding the matter to the assessing authority pertain-ing to the assessment year 1997-98 after setting aside both the orders ofthe assessing authority and the Commissioner of Income-tax (Appeals),with a direction to the assessing authority to consider afresh the claim ofthe assessee-company as to provision for bad and doubtful debts anddispose of the matter in accordance with law after giving the assesseesufficient opportunity to substantiate its claim by producing the requiredparticulars in respect of each debt. 43. We answer the third and fourth substantial questions of law that havearisen only in I. T. A. No. 633 of 2004 in the "negative" and in favour of theRevenue holding that the Tribunal is not justified in deleting the dis-allowance of the claim of the assessee to the tune of Rs. 1,10,53,509 forassess ..... X X X X Extracts X X X X X X X X Extracts X X X X
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