Commissioner of Income Tax, Visakhapatnam V. Prathyusha Associates

ITTA/18/2000

AI Insights

The case involves the Commissioner of Income Tax, Visakhapatnam as the appellant and M/s. Prathyusha Associates as the respondent. The core issue was the jurisdiction of the Assessing Officer in disallowing a depreciation claim of 40% on tippers owned by the assessee, which was contested after a search and seizure operation under Section 132 of the Income Tax Act, 1961. The ITAT had previously ruled in favor of the assessee, leading to this appeal by the Revenue. The High Court's decision affirmed the ITAT's ruling, emphasizing that the Assessing Officer could not base his decision on the returns filed post-search when no new material was discovered during the search operations.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 691711 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 16-02-2012
• Assessment Year: misc
• Other Referred Cases: THE COMMISSIONER OF INCOME- TAX, VISAKHAPATNAM V/s. B.SATYANARAYANA, ASSISTANT COMMISSIONER OF INCOME- TAX V/s. HOTEL BLUE MOON
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Assessment; Depreciation; Jurisdiction; Search and seizure; Undisclosed income
• Section: 132; 158BC; 260-A; 158BB(1)

Judgement Text

"THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B.LOKUR AND THE HON’BLE SHRI JUSTICE SANJAY KUMAR I.T.T.A.NO.18 OF 2000 DATED 16th FEBRUARY, 2012 Between Commissioner of Income Tax, Visakhapatnam. …Appellant and M/s.Prathyusha Associates, D.No.48-10-24A, Srinagar, Visakhapatnam – 530 016. ...Respondent THE HON’BLE THE CHIEF JUSTICE SHRI MADAN B.LOKUR AND THE HON’BLE SHRI JUSTICE SANJAY KUMAR I.T.T.A.NO.18 OF 2000 JUDGMENT (Per Sri Justice Sanjay Kumar) The following substantial questions of law were framed for consideration in this appeal by the Revenue under Section 260(A) of the Income Tax Act, 1961 (hereinafter, ‘the Act’): 1) Whether on the facts and in the circumstances of the case, the ITAT is right in holding that the Assessing Officer has exceeded his jurisdiction while completing the assessment under Section 158BC? 2) Whether on the facts and in the circumstances of the case, the interpretation given by the ITAT to Section 158BB(1) in allowing the assessee’s claim in respect of depreciation holds good? 3) Whether on the facts and in the circumstances of the case, the ITAT is right in holding that the assessee is entitled to claim depreciation @ 40% on the merits of the case, having regard to the nature of business carried on by the respondent assessee? The assessee, a partnership firm, was subjected to search and seizure operations under Section 132 of the Act on 06.11.1995. Notice under Section 158BC of the Act was issued on 11.01.1996 calling for the assessee’s return of undisclosed income for the block period 01.04.1985 to 06.11.1995. The assessee filed its return on 28.05.1996 and by order dated 27.11.1996, the Assessing Officer, the Assistant Commissioner of Income Tax, Circle 2, Visakhapatnam, computed the assessee’s undisclosed income for the block period and the tax leviable thereon. In the course of this assessment, the Assessing Officer disallowed the assessee’s claim of depreciation @ 40% on its tippers and permitted depreciation @ 25% only. The disallowance was for two assessment years, 1994-95 and 1995-96, and amounted to Rs.46,18,266/-. Aggrieved by this disallowance, the assessee preferred an appeal before the Income Tax Appellate Tribunal, Hyderabad Bench ‘A’, in I.T.(SS)A.No.57/Hyd/1996. By order dated 25.06.1999, the Tribunal allowed the assessee’s appeal. Hence, this appeal by the Revenue. It is not in dispute that no information/material pertaining to this depreciation allowance was found during the search and seizure operations. It was only on the basis of the returns filed by the assessee that the Assessing Officer disallowed the claim of depreciation at the higher rate. The return for the assessment year 1994-95 was admittedly filed before the search operations wherein the assessee had claimed depreciation at 40%. The return for the assessment year 1995-96 was filed after the search operations, but again claiming the same depreciation allowance. In view of these undisputed facts, the Tribunal opined that the Assessing Officer had exceeded his jurisdiction under Section 158BC of the Act in disallowing the depreciation allowance at 40% by going beyond the material unearthed in the search and seizure operations. The first substantial question of law framed in this appeal pertains to the correctness of this conclusion of the Tribunal. This issue is no longer res integra. In THE COMMISSIONER OF INCOME- TAX, VISAKHAPATNAM V/s. B.SATYANARAYANA[1], we held that the special provisions of Chapter XIV-B of the Act, dealing with assessment of undisclosed income unearthed as a result of a search, would not be attracted in a case where the information sought to be relied upon by the Assessing Officer was already available in the balance sheet or the books of account of the assessee. We observed that as undisclosed income would be the income which was unearthed during the search, conversely, if the income was already disclosed in the return of income or was available in the books of account, it would not fall within the category of undisclosed income or income unearthed during the search. Reliance in this regard was placed on the Judgment of the Supreme Court in ASSISTANT COMMISSIONER OF INCOME- TAX V/s. HOTEL BLUE MOON[2] and judgments of various other High Courts. In that view of the matter, when it is an admitted fact that the depreciation allowance claimed by the assessee @ 40% was the subject matter of the returns filed by the assessee, finding reflection in its books of account, and no material pertaining thereto was discovered during the search and seizure operations, the Assessing Officer could not have made this allowance the subject matter of assessment under Section 158BC of the Act. The Tribunal was therefore fully justified in holding that the Assessing Officer had exceeded his jurisdiction under Section 158BC of the Act in this regard. The first substantial question of law framed in this appeal therefore requires to be answered in the affirmative, in favour of the assessee and against the Revenue. In the light of our finding on this aspect, the other two questions of law become purely academic and do not require adjudication. In the result, the appeal is dismissed but, in the circumstances, without any order as to costs. -------------------------------- MADAN B.LOKUR, CJ. ---------------------------- SANJAY KUMAR, J. 16th FEBRUARY, 2012. PGS [1] ITTA No.29 of 1999 dated 09.12.2011 [2] (2010) 321 ITR 362 (SC) "