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TMI Blog2006 (11) TMI 115X X X X Extracts X X X X X X X X Extracts X X X X ..... ggregating to Rs.2,39,65,498/- and also to disallow depreciation in the respective assessment years aggregating to Rs.10,66,429/- by initiating proceedings under Section 148 read with Section 150(1) and Explanation 2 to Section 153 of the Act. The question, therefore, to be considered in all these petitions is, whether the CIT (Appeals) has in fact issued such directions and if so, whether such directions are valid ? 5. To appreciate the dispute, we may note few facts. The petitioner (hereinafter referred to as "the assessee") is an investment company. The return of income for assessment year 1989-1990 (writ petition No.2465 of 2006) was filed by the assessee on 31 st December, 1991 declaring income of Rs.19,56,261/-. In the return of income, the assessee had claimed depreciation on depreciable assets under Section 32 of the Act. 6. On 30 th March, 1995 an assessment order under Section 143(3) of the Act was passed by the Assessing Officer for assessment year 1989-1990 determining total income at Rs.21,71,830/-. By the said assessment order, depreciation as claimed by the assessee was allowed. The appeal filed by the assessee against the said assessment order was disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9,65,498/- paid to the bank during the block period on the said loan of Rs.5 crore was not allowable as deduction. It was further held that during the course of search and post search enquiries, certain assets which are reflected in the books were not found at the premises of the assessee and, therefore, the depreciation allowed thereon amounting to Rs.10,66,429/- was not allowable. Accordingly, by disallowing the bank interest and depreciation, the undisclosed income of the assessee for the block period was computed at Rs.2,50,31,927/-. 11. On an appeal filed by the assessee, the CIT (Appeals) by his order dated 24 th December, 2004 set aside the block assessment order by holding that the undisclosed income computed by the Assessing Officer cannot be sustained inter alia on the ground that there was no evidence or any material found during the search proceedings on the basis of which the undisclosed income could be assessed under Section 158BC of the Act. The CIT (Appeals) further held that even the statements of Mr. Stany Saldanha, Director of the assessee company do not contain any admission regarding the undisclosed income. Accordingly, the CIT (Appeals) held that the und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of final statements do not show any admission by Mr. Stany Saldhana which can be used as a material relatable to any evidence found on 17/9/98a as none was found on that date i.e., the day of search (17/9/98) or the Appellant. Thus, assessment under section.158BC read with section 158BC in determining undisclosed income does not have any leg to stand. The CIT(A) further in the order, quoted that "the Assessing Officer is free to look into and consider these disallowances u/s.148 of the I T Act, in relevant assessment years in terms of Section 150(1) read with Explanation 2 of Section 153 in respect of deletion of both amounts made in this order." In the light of the above and reckoning the interest of the revenue and following the guidance / directions issued by the CIT(A) in his order, the assessments for the relevant assessment years involved in the block period are reopened under section.148 of the Act in terms of Section 150(1) read with Explanation 2 of Section 156 of the Act. Issue notices under section 148 of the Act." 14. The assessee objected to the reopening of the assessments by addressing a letter dated 15 th June, 2006, through their Chartered Accountan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 th September, 2000. Though, the CIT (Appeals) has set aside the block assessment order, the revenue has not accepted the same and has filed an appeal before the ITAT and the same is pending. Therefore, it is not open to the revenue to contend on the one hand that the block assessment order has been correctly passed and at the same time contend that the alleged income which has already been assessed in the block assessment has escaped assessment. The submission is that it is not permissible for the same income to be assessed twice, i.e. once in the block assessment and again in the regular assessment. 16. Relying upon a decision of the Apex Court in the case of ITO v. Murlidhar Bhagwandas reported in [1964] 52 ITR 335, Mr. Mistry submitted that the expression "finding" used in Section 150(1) of the Act would mean a finding which is necessary for the disposal of an appeal and giving relief in respect of the assessment of the year in question. Similarly, the expression "direction" means a direction which the appellate or the revisional authority is empowered to give under the Section mentioned therein. In the present case, the CIT (Appeals) has neither given any finding tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment order, the CIT (Appeals) has directed for initiation of reassessment proceedings. 20. Mr. Chatterjee submitted that interest on borrowed funds can be allowed as business expenditure only if the borrowed funds are utilized for the business of the assessee. From the block assessment order it is seen that the bank loan of Rs.5 crore obtained by the assessee from Vysya Bank has been used for non business purposes. The loan amounts were kept as share application money in the front companies of GMR Vasavi Group in violation of the terms of loan agreement. Since the interest paid to Vysya Bank did not relate to the business of the assessee, the said interest paid to the bank could not be allowed as business expenditure. 21. Mr. Chatterjee further submitted that during the course of search it was seen that the assets on which depreciation has been allowed were not found in the premises. Some of the assets like refrigerator, air-conditioner etc. which were purchased by the assessee were not used for business purposes but the same were used by the Directors of the Company. If the assets were not in existence or were not used for business purposes, then, depreciation could no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. 26. We have carefully considered the rival submissions as also the decisions cited before us. The power conferred upon the Assessing Officer to issue notice under Section 148 of the Act for reopening the assessments in cases where income has escaped assessment, is subject to the time limit prescribed under Section 149 of the Act. Section 149 of the Act (as substituted by Finance Act, 2001) provides that no notice under Section 148 shall be issued after the expiry of six years from the end of the relevant assessment years in cases where the income chargeable to tax which has escaped assessment amounts to or is likely to amount to Rs.1 lakh or more. In the present case, the assessments for AY 1989-1990 to AY 1999-2000 are sought to be reopened by issuing notices on 30 th March, 2006 which is beyond six years (except for AY 1999-2000) from the end of the relevant assessment year. Thus, the notices issued for all the assessment years (except for AY 1999-2000) are beyond the period of limitation prescribed under Section 149 of the Act and hence they are time-barred. 27. To get over this difficulty, it is contended by the revenue that in the present case the limitation pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to such evidence having no evidence found against the Appellant as on 17.9.98. Thus assessment done u/s.158BC in determining undisclosed income at Rs.2,50,31,927/- is without any support of statutory provisions of Act and cannot also be done in view of the decisions by jurisdictional High Court's decision relied upon by the Appellant reported at 256 ITR 29 (Bom) in the case of Vikram A Doshi and [2001] 247 ITR 448 in CIT v. Vinod Danachand Ghodavant. Disallowance of interest in respect of which regular entries are made in books of accounts and no evidence is found there against during search on 17.9.98 and entries in respect of depreciation being part of regular entry to compute total income in its regular return of income and no material hearing been found during search dt.17.9.98 to deny such a claim, no undisclosed income can be determined u/s 158BC of the IT Act. The asstt. u/s.158BC dt.29-9-2000 has been finalized on the basis of statements recorded of Mr.Stany Saldanha on 22.10.98. No evidence in respect of disallowance was found during the search on 17.9.98. Thus, it cannot be said that any material was found on 22.10.98 relating to any evidence found on 17.9.98 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly that which is necessary for the disposal of an appeal in respect of an assessment of a particular year. The Apex Court further held that the appellate authority may incidentally find that the income belongs to another year, but that is not a finding necessary for the disposal of an appeal in respect of the assessment year in question. Similarly, the expression 'direction' has been construed by the Apex Court to mean a direction which the appellate or revisional authority as the case may be, is empowered to give under the Sections mentioned therein. In the present case, the CIT (Appeals) has neither given a finding to the effect that the income chargeable to tax has escaped assessment nor given any direction to the ITO to initiate reassessment proceedings for the block period by issuing notices under Section 148 of the Act. The clear finding recorded by the CIT (Appeals) is that there is no evidence or any material found during the search proceedings on the basis of which undisclosed income can be computed under Section 158BC of the Act. The CIT (Appeals) has recorded a finding (see page 141 of the petition) that even the statements recorded in the form of preliminary or final s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings. Therefore, the contention of the revenue that the CIT (Appeals) has directed the Assessing Officer to initiate reassessment proceedings cannot be accepted. 33. As held by the Apex Court in the case of Rajinder Nath [1979] 120 ITR 14, the observations of CIT (Appeals) that the ITO is free to look into and consider the disallowances, would simply mean, giving an option and discretion to the ITO to take or not to take action as he deems fit and such an observation cannot be said to be a 'direction' given by the CIT (Appeals) as contemplated under Section 150 of the Act. 34. The decisions of this Court in the case of CIT v. Vikram A. Doshi [2002] 256 ITR 129, CIT v. Ghodawat Pan Masala Products Pvt. Ltd. [2001] 250 ITR 570 were relied upon by the counsel for the revenue in support of his contention that the disallowances in question were liable to be made in regular assessment and not in the block assessment. In both these cases neither the scope of reassessment proceedings nor the powers of CIT (Appeals) to direct the ITO to initiate reassessment proceedings was an issue. In any event, once it is held that the CIT (Appeals) has not given any findin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny finding or direction for reopening of the assessments and, therefore, the provisions of Section 150 of the Act are not applicable, consequently, the impugned notices which are time-barred under Section 149 of the Act are without jurisdiction and are liable to be quashed and set aside. Once, it is held that the CIT (Appeals) has not given any finding or direction for reopening the assessment, the benefit of Explanation 2 to Section 153 of the Act would not be available to the Revenue. 36. It was contended on behalf of the revenue that if the reassessment proceedings are allowed to be continued during the pendency of the appeal filed by the revenue before the ITAT against the order of CIT (Appeals), no prejudice would be caused to the assessee. This argument is wholly misconceived. Validity of the impugned notices cannot be decided on the basis of the prejudice that may or may not be caused to the assessee. Whether any prejudice is caused or not, if the notices are without jurisdiction, they are liable to be quashed and set aside. 37. As stated earlier, validity of the order passed by CIT (Appeals) are not questioned in these petitions and, therefore, we are not expressin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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