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TMI Blog2012 (9) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... s a case where the respondent himself owns a large majority of the equity capital of the company and it would not, therefore, be unnatural for him not to have demanded the payment. Under clause 16(iii), the company was bound to reimburse the respondent only “on demand” from the respondent. The fact that the respondent's accounts are maintained on a mercantile basis would make no difference. Even assuming that he is entitled to reimbursement of the marketing expenses, the liability of the company to pay him the said would arise only in the event of his having demanded the same - that the primary facts were also disclosed in the books of accounts of the respondent as well as the company and that the AO was, therefore, not justified in making an addition in the block assessment - both the issues would not fall under the purview of Chapter-XIV B of the Act as no evidence was found during the course of search which would warrant their consideration only in the block assessment order - in favour of assessee. - INCOME TAX APPEAL NO. 1286 OF 2009 - - - Dated:- 28-8-2012 - S.J. VAZIFDAR, M.S. SANKLECHA, JJ. Mr. Tejveer Singh for the Appellant. Mr. S.E. Dastur, senior counse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of it by the assessee inspite of the fact that undisclosed income u/s. 158BB is not restricted to the amount received but has its application on the income accrued as well when the assessee is following mercantile system of accounting, because of applicability of provisions of Section 145 [Sec. 158B BC(b) refers] ? (e) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT erred in interpreting explanation to Section 158BA to affirm its conclusion inspite of the fact that neither royalty income nor reimbursement of advertisement expenses had ever been assessed earlier in any regular assessment as income of the assessee ? (f) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT erred in ignoring the writings submitted by the Assessing Officer during several hearings and relying on old judgments rendered useless by amendment in Section 158BB vide Finance Act, 2002 ? (g) Whether on the facts and in the circumstances of the case and in law, the addition on account of royalty in question can be made being undisclosed income under section 158B(b) of the Income Tax Act, 1961 ? 3. Both the parties proceeded on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 97 onwards. For the assessment years 1996-97 to 1999-2000, the respondent declared royalty amounting to Rs.25,81,625/-, Rs.69,00,229/-, Rs.1,52,05,664/- and Rs.2,64,04,267/-. 7. In respect of the assessment year 2000-01, the respondent showed royalty income upto September, 1999 of Rs.1,67,12,840/-. The respondent annexed Note No.1, which formed a part of Form No.3CD, which mentioned that the payment of royalty had discontinued and that all the business activities had stopped during the assessment year 2001-02. Thus, though the agreement dated 23rd December, 1994, was to remain in force for ten years with effect from the assessment year 2000-01, the payment of royalty had ceased, the reason is this. As stated earlier, the respondent is the sole proprietor of Jyothy Laboratories. He was also the promoter, Managing Director and alongwith the members of his family, the majority share-holder of Jyothy Laboratories Limited. 8. On 17th November, 1999, the respondent entered into an agreement titled Shareholders Agreement with Baring India Investment Limited (BIIL), a company incorporated in Mauritius. The agreement recorded that the respondent was desirous that BIIL invest in Jyothy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same. This was a business decision that the respondent took. 11. Admittedly, in the return filed on 31st October, 2000, i.e. prior to the search, the respondent had attached Schedule VIII in Saral Return of Form No.2D for the assessment year 2000-01. Note No.1, which formed part of Form No.3CD, mentioned that the company had discontinued the payment of royalty during the assessment year 2001- 02. 12. Mr. Dastur, the learned senior counsel appearing on behalf of the respondent, relied upon a judgment of this Court in Commissioner of Income Tax v. Dr. M.K.E. Memon (2001) 168 CTR (Bom.) 184 = 248 ITR 310. The Division Bench held as under :- 8. In conclusion, we would also like to mention that Chapter XIV-B lays down a special procedure for the assessment of search cases and provides for assessment of undisclosed income as a result of the search. Under s. 158BB, r/w s. 158BC of the Act, what is assessed is the undisclosed income of the block period and not the total income or loss of the previous year required to be assessed under the regular assessment vide s. 143(3). This exercise under s. 143(3) of the Act for regular assessment stands on a different footing in contrast to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spondent. The respondent's case is that he has not even demanded the reimbursement. Whether in normal circumstances, this would be unusual or not is not relevant. This is a case where the respondent himself owns a large majority of the equity capital of the company. It would not, therefore, be unnatural for him not to have demanded the payment. Under clause 16(iii), the company was bound to reimburse the respondent only on demand from the respondent. The fact, therefore, that the respondent's accounts are maintained on a mercantile basis would make no difference. Even assuming that he is entitled to reimbursement of the marketing expenses, the liability of the company to pay him the said would arise only in the event of his having demanded the same. Moreover, this agreement was admittedly with the Department. It is not even the Department's case that it lost sight of the same. Even if it had, the remedy would have been under section 147 r/w section 148 or section 154. The remedy was not under section 132 read with section 158B. 16. The Assessing Officer had stated that there were certain messages for the transfer of advertisement expenses for the financial year 1999-2000 from t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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