Akar Leasing & Financial Services Ltd., Ahmedabad V. The Dy.CIT.,Circle-1., Ahmedabad

ITA 832/AHD/2012

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 1027 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 22-07-2016
• Assessment Year: 1995-1996
• Appeal Filed On: 16-04-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: JAGDISH
• Assessee Lawyers: P D SHAH
• Keywords: Depreciation; Search and seizure; Block assessment; Documents seized
• Section: 143(3); 131; 132; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD B BENCH AHMEDABAD , BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER, AND SHRI N. K. BILLAIYA , ACCOUNTANT MEMBER. ITA. NO.832/AHD/2012 (ASSESSMENT YEAR:1995-96) AKAR LEASING AND FINANCIAL SERVICES LTD., MEHTA LODHA & CO., CHARTERED ACCOUNTANTS, 105, SAKAR-I, ASHRAM ROAD, AHMEDABAD - 380009 APPELLANT VS. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, AHMEDABAD RESPONDENT PAN: AAACM9879J /BY APPELLANT : SHRI P. D. SHAH, A.R. /BY RESPONDENT :SHRI JAGDISH, CIT D.R. /DATE OF HEARING : 22.07.2016 /DATE OF PRONOUNCEMENT : 27.07.2016 ORDER PER SHAILENDRA KUMAR YADAV, J.M: THIS APPEAL HAS BEEN FILED BY ASSESSEE AGAINST THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-6, AHMEDABAD, DATED 20.03.2012 FOR A.Y. 1995-96 ON FOLLOWING GROUNDS: ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 2 1. THAT THE ORDER PASSED BY THE LEARNED CIT(A) IS WITHOUT JURISDICTION AND IS AGAINST THE LAW AND THEREFORE THE LEARNED AO SHOULD BE DIRECTED TO NOT TO DISALLOW ANY PART OF THE CLAIM OR THE DEPRECIATION. 2. THAT THE LEARNED CIT(A) HAS ERRED IN LAW AND FAC TS BY CONFIRMING DISALLOWANCE OF DEPRECIATION ON EFFLUENT TREATMENT PLANTS OF RS.7,20,00,000/-, ON CINEMATOGRAPHIC FILMS OF RS.3,17,28,794/- AND ON AIR CONDITIONER OF RS.2,760/- AND THEREFORE THE LEARNED ASSESSING OFFICER SHOULD BE DIRECTED TO ALL OW THE SAID CLAIM OF DEPRECIATION WHILE COMPUTING THE TOTAL INCOME. 2. AT THE OUTSET OF HEARING, LD. AUTHORIZED REPRESENTA TIVE DID NOT PRESS THE ISSUE OF DEPRECIATION ON AIR COND ITIONER OF RS.2,760/-. SAME IS DISMISSED AS NOT PRESSED. 3. THIS IS A SETTING ASIDE MATTER. ITAT, AHMEDABAD WHILE SETTING ASIDE THE ISSUE OBSERVED AS UNDER: THE ONLY DISPUTE IN THIS APPEAL IS AGAINST THE DISALLOWANCE OF DEPRECIATION ON EFFLUENT TREATMENT PLANTS OF 7,20,00,000, ON CINEMATOGRAPHIC FILMS OF RS.3,77,28,794/- AND ON AIR CONDITIONER OF RS. 2,76 0/-. THE CONTENTION OF THE ASSESSEE IS THAT THESE AMOUNT S HAVE BEEN DISALLOWED ON THE BASIS OF SEIZED MATERIAL IN THE BLOCK ASSESSMENT, AND THEREFORE, NO DISALLOWANCE SH OULD HAVE BEEN MADE IN REGULAR ASSESSMENT. WE FIND THAT SIMILAR ISSUE CAME UP BEFORE THE TRIBUNAL IN THE CASE OF MARDIA STEEL LTD. (IN LIQUI DATION) IN ITA NO.3991/AHD/2003 & 869/AHD/2004 ORDER DTD. 28.04.2006, WHEREIN THE TRIBUNAL VIDE PARAGRAPH 11 SET ASIDE THE MATTER TO THE FILE OF THE CIT(A) TO DECID E THE MATTER AFRESH IN ACCORDANCE WITH LAW AND AFTER DECI DING THE ASSESSEE'S APPEAL AGAINST BLOCK ASSESSMENT, AS UNDER:- ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 3 'AFTER CAREFUL CONSIDERATION OF THE RIVAL SUBMISSIO NS AND THE FACTS AND CIRCUMSTANCES OF THE CASE, WE ARE OF THE OPINION THAT SINCE ASSESSEE'S APPEAL AGAINST ADDITI ON MADE ON SUBSTANTIVE BASIS IN BLOCK ASSESSMENT IS ST ILL PENDING BEFORE THE CIT(A) IN CONSEQUENCE UPON THE O RDER OF THE ITAT AHMEDABAD BENCH 'D IN ASSESSEE'S APPEAL AGAINST BLOCK ASSESSMENT - IN IT(SSA) NO.40/AHD/200 1, DTD. 21/04/2006 (COPY ON FILE) WE ARE OF THE OPINIO N THAT TO MEET THE END OF JUSTICE, THE ISSUE RELATING TO V ALIDITY OF RE-ASSESSMENT PROCEEDINGS AS WELL AS ADDITIONS, WHI CH WERE SUBJECT MATTER OF ADDITION IN BLOCK ASSESSMENT ALSO MADE ON PROTECTIVE BASIS, BE RESTORED BACK TO THE F ILE OF CIT(APPEALS) FOR FRESH DISPOSAL, AFTER THE DECISION IN ASSESSEE'S APPEAL IN BLOCK ASSESSMENT. CONSEQUENTLY , WE SET ASIDE THE ORDERS OF THE CIT(APPEALS) FOR BOTH T HESE ASSESSMENT YEARS AND RESTORE THE ASSESSEE 'S APPEAL S BACK TO HIS FILE WITH THE DIRECTIONS THAT THE SAME MAY BE DECIDED AFRESH IN ACCORDANCE WITH THE LAW AND AFTER DECIDING THE ASSESSEE'S APPEAL AGAINST BLOCK ASSESS MENT. THE ASSESSEE WILL, HOWEVER, BE ALLOWED A REASONABLE OPPORTUNITY OF BEING HEARS.' SINCE THE FACTS AND CIRCUMSTANCES ARE STATED TO BE SIMILAR, WE SET ASIDE THE ORDER OF CIT(A) AND REMIT THE MATTER BACK TO HIS FILE WITH SIMILAR DIRECTIONS.' 3.1 IN ABOVE BACKGROUND, CIT(A) OBSERVED THAT THE A FORESAID APPEAL WAS TO BE DECIDED AFTER DECIDING ASSESSEES APPEAL AGAINST BLOCK ASSESSMENT. AGAINST THE APPEAL SET A SIDE BY ITAT IN CASE OF BLOCK ASSESSMENT, ASSESSEE FILED TH E APPEAL BEFORE THE HONBLE GUJARAT HIGH COURT WHEREIN VIDE ORDER DATED 23.06.2011 QUASHED THE ORDER DATED 04.01.2006 PASSED BY ITAT. IN BLOCK ASSESSMENT, APPEAL BEFORE ITAT, GROUND RAISED BY REVENUE WAS AS UNDER: THE LD. CIT(A) APPEAL HAS ERRED IN LAW AND ON FACT S IN ANNULLING THE BLOCK ASSESSMENT. ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 4 THIS APPEAL WAS SET ASIDE BY ITAT TO CIT(A). HOWEV ER, WITH THE HONBLE GUJARAT HIGH COURTS ORDER, ITATS ORDE R WAS QUASHED AND THE CIT(A)S EARLIER ORDER IN WHICH BLO CK ASSESSMENT ORDER WAS ANNULLED HAS BECOME FINAL. IN VIEW OF ABOVE, THE AFORESAID APPEAL SET ASIDE BY ITAT TO CI T(A) WAS NO LONGER AFFECTED BY BLOCK ASSESSMENT APPEAL SET A SIDE BY ITAT. 3.2 NOW, ONLY ISSUE BEFORE US IN SETTING ASIDE PROC EEDING IS REGARDING DISALLOWANCE OF DEPRECIATION ON EFFLUENT TREATMENT PLANTS OF RS.7,20,00,000/-, ON CINEMATOGRAPHIC FILM S OF RS.3,17,28,794/- AND ON AIR CONDITIONER OF RS.2,760 /- IN REGULAR ASSESSMENT. AS STATED ABOVE, THE ISSUE OF A IR CONDITIONER OF RS.2,760/- IS NOT PRESSED, WITHOUT P REJUDICE TO THE MERIT OF THE SAME, ISSUE IS DISMISSED AS NOT PRESSED. 3.3 THE STAND OF ASSESSEE HAS BEEN THAT THIS ISSUE OF DEPRECATION HAS BEEN DISALLOWED ON THE BASIS OF SEI ZED MATERIALS. THEREFORE, NO DISALLOWANCE COULD HAVE B EEN MADE IN REGULAR ASSESSMENT. NOW, BLOCK ASSESSMENT IN T HIS CASE IS FINALLY ANNULLED AS DISCUSSED ABOVE. SO, THE AD DITIONS ARE ONLY IN THE REGULAR ASSESSMENT. THE ISSUE ON TECHNI CAL AS WELL AS MERIT WERE DISCUSSED IN DETAIL BY CIT(A)-3, AHMEDABAD FOR MAKING A REGULAR ASSESSMENT AS AGAINS T THE BLOCK ASSESSMENT AND ON MERIT OF ADDITIONS ARE QUOT ED AS UNDER: I HAVE PERUSED THE ABOVE FACTS AND ALSO STATEMENT REFERRED BY THE ASSESSING OFFICER INCLUDING THOSE R ECORDED ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 5 AFTER THE DATE OF SEARCH. THE PLEA OF THE APPELLANT IN THE ABOVE GROUND TAKEN IS THAT THE ADDITIONS AMOUNT TO DOUBLE ADDITION SINCE ON ADDITION HAS ALREADY BEEN MADE SEPARATELY IN THE BLOCK ASSESSMENT AND NO ADDITION IS THEREFORE CALLED FOR U/S 143(3). IT IS FURTHER PLEA DED THAT THE ADDITIONS ARE BASED ON THE MATERIAL COLLECTED U /S 132 AND STATEMENTS RECORDED U/S132(4). I HAVE CONSIDERE D THIS ASPECT OF THE ARGUMENT AND ALSO VARIOUS CASE L AWS CITED BY THE APPELLANT. IN THE INSTANT CASE, IT IS SEEN THAT THE ASSETS ON WHICH 100% DEPRECIATION HAS BEEN CLAI MED STAND REFLECTED IN THE BALANCE SHEET OF THE APPELLA NT AS ON 31/3/1995. THE POINT IS WHETHER THE DEPRECIATION SH OULD BE ALLOWED OR IF SO, AT WHAT RATE?. THIS BEING SO, I DO NOT FIND ANY INFIRMITY WITH THE VIEW TAKEN BY THE ASSES SING OFFICER THAT THE SAID ADDITIONS CANNOT BE CONSIDERE D U/S 143(3). ON PERUSAL OF THE BLOC ASSESSMENT ORDER, IT IS NOTED THAT THE ASSESSING OFFICER HAS MADE THE FOLLO WING OBSERVATIONS IN PARA. 11.1 AT PAGE 31 OF THE BLOCK ASSESSMENT ORDER DTD. 23.3.1999:- 'THE ASSESSEE VIDE ITS LETTER DTD. 11.1.99 HAVE OBJECTED TO MAKE ANY ADDITION/DISALLOWANCE ON THE B ASIS OF SEIZED MATERIAL IN THE BLOCK ASSESSMENT ON THE P LEA THAT SAID ADDITION/DISALLOWANCES HAVE ALREADY BEEN MADE IN THE REGULAR ASSESSMENT FOR A.Y. 1995-96. ACCORDI NG TO HIM AS PER EXPLANATION ADDED TO SECTION 158BA(2) OF THE IT.ACT, 1961 THE ADDITION MADE IN REGULAR ASSESSMEN T CANNOT BE MADE IN BLOCK ASSESSMENT. ASSESSEE HAS MA DE AN APPLICATION U/S 154 ON 8.1.1998 REQUESTING TO DE LETE THE ADDITION/DISALLOWANCES MADE ON THE BASIS OF SEA RCH MATERIAL FROM THE TOTAL INCOME OF A.V. 1995-96.' THE ASSESSING OFFICER IS NOT BARRED TO CONSIDER MATERIAL AVAILABLE WITH HIM, INCLUDING THE EVIDENCE FOUND DURING THE COURSE OF SEARCH AND ALSO BY WAY OF FURT HER INQUIRIES CONDUCTED AFTER THE SEARCH, BY THE ADIT, THROUGH THE JDIT (INVESTIGATION), CHENNAI & U/S 131 OF IT.ACT, 1961. CALCUTTA ITAT IN THE CASE OF SHAW WAL LANCE LD. VS. ACIT REPORTED IN 68 ITD P. 148. THE CALCUTT A ITAT HAS HELD THAT ONCE AN ADDITION HAS BEEN MADE IN THE BLOCK ASSESSMENT ORDER THEN THE SAME CANNOT BE MADE IN THE REGULAR ORDER U/S 143(3). FOLLOWING THE SAME RA TIO AND ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 6 ALSO THE EXPLANATION TO SECTION I58BA AS DISCUSSED ABOVE, ONCE AN ADDITION IS MADE IN THE REGULAR ASSESSMENT U/S 143(3), THE SAME CANNOT BE MADE IN THE BLOCK ASSESS MENT ORDER HAS BEEN IN THIS CASE. THERE IS NO DOUBT THAT THE RELEVANT ENTRIES RELATING TO THE ASSETS ARE REFLECT ED IN THE BOOKS OF ACCOUNT AND ALSO THE RETURN OF INCOME FILE D WHICH IS SUBJECT MATTER OF APPEAL U/S 143(3] ORDER DTD. 27.3.1998. AS A MATTER OF FACT THE BLOCK ASSESSMENT ORDER HAS BEEN PASSED ON 23.3.99 I.E. AFTER THE ORDER U/S 14393) WAS PASSED ON 27.3.98. THE GRIEVANCE OF THE ASSESSEE WOULD HAVE BEEN VALID, FOR THE SAME ADDITI ONS BEING MADE AGAIN IN THE BLOCK ASSESSMENT ORDER U/S 158BC DTD. 23.3.99; AS THOSE ADDITIONS CANNOT BE MA DE AGAIN IN THE SAID ORDER IN VIEW OF SPECIFIC PROVISI ON OF SECTION 158BA R.W. EXPLANATION (B] THERETO, REPRODU CED EARLIER IN THIS ORDER. THERE IS NO EVIDENCE THAT TH E ADDITIONS MADE IN THE PRESENT ORDER U/S 143(3] ARE PROTECTIVE ASSESSMENT. IN VIEW OF THE ABOVE, JUDICI AL DECISIONS REFERRED ABOVE AND THE FACTS DISCUSSED, T HE PLEA OF THE APPELLANT THAT ADDITIONS CANNOT BE MADE IN 1 43(3) CANNOT BE ACCEPTED, MORE SO AS MENTIONED EARLIER TH AT THE FAX RATES U/S 143(3) ARE @ 40% (PLUS SURCHARGE) AS AGAINST HIGHER TAX RATE @ 60% U/S 158BA(2) R.W.S. 1 13 (PLUS SURCHARGE) UNDER ORDER PASSED U/S I588C. THIS VIEW HAS ALSO BEEN SUPPORTED BY THE DECISION OF GUJARAT HIGH COURT REPORTED IN 248 ITR P.526 IN THE CASE OF N.R. PAPER BOARD. IF WOULD BE INCORRECT TO HOLD THAT THE ADDIT ION IS BASED ENTIRELY ON THE SEARCH MATERIAL COLLECTED DUR ING THE COURSE OF SEARCH ON 9.1.97 AS DISCUSSED BY THE ASSE SSING OFFICER IN DETAIL, ENQUIRIES HAVE BEEN MADE FROM CH ENNAI AFTER THE DATE OF SEARCH AND THE VIEW TAKEN IS BASE D ON THE OVERALL EVIDENCES ON RECORD. ' ON MERIT CIT (A)-3 HAS CONFIRMED THE ADDITIONS BY GIVING FOLLOWING FINDINGS: 'I HAVE GONE THROUGH THE SAID REPORT AND ALSO THE SUBMISSIONS INCLUDING THE VARIOUS CASE LAWS REFERRE D BY THE APPELLANT'S COUNSEL. HAVING REGARD TO THE CIRCUMSTANCES OF THE FACTS AND ALSO THE VARIOUS EVI DENCES AND CHAIN OF EVENTS REFERRED BY THE ASSESSING OFFIC ER, I AM TO AGREE WITH THE ASSESSING OFFICER'S VIEW THAT THE SAID ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 7 CLAIM OF PURCHASE AND LEASE BACK OF THE TRANSACTION IS NOT A TRUE LEASING TRANSACTION AND HAS TO BE CONSIDERED PURE FINANCIAL TRANSACTION. NO DEPRECIATION, THEREFORE, IS ADMISSIBLE ON THE SAME. THIS VIEW IS SUPPORTED AND HOLD IN VIEW OF THE REASONING GIVEN BY THE ASSESSING OFF ICER AND INCLUDING THE FOLLOWING:- (A) AS DISCUSSED EARLIER, THE PURPOSE OF THE TRANSA CTION AS STATED BY SH. CHAKRABORTY WAS TO REDUCE TAX LIABILI TY (REFER ANSWER TO QUESTION NO.20(PAGE 12 OF THE ASSE SSMENT ORDER) (B) DEPRECIATION HAS ALREADY ALLOWED AND CLAIMED BY MARDIA CHEMICAL LTD. (C) THE VALUATION OF ETP AND AIR POLLUTION CONTROL PLANT THROUGH SH. MUKESH SHAH ALSO LEADS TO THIS CONCLUSI ON THAT THE PRIMARY AND MAIN OBJECT OF THE ASSESSEE WA S TO CLAIM HIGHER DEPRECIATION WITH A VIEW TO REDUCE TAX LIABILITY AND THE VALUER HAS ALSO CONFIRMED THAT IT WAS THE INSTANCE OF THE APPELLANT MORE PARTICULARLY SH. RAK ESH MARDIA (ANSWER TO QUESTION NO.18 PAGE 14 OF THE ORD ER) AND IS ALSO REFERRED TO THE MANNER IN WHICH HE CAN INFLATE THE VALUATION OF THE SAME (REFER ANSWER TO QUESTION NO.20 & 31). HE HAS ALSO CONFIRMED EVEN THE YEAR OF PURCHASE/COMMISSION HAS BEEN CHANGED FROM THE YEAR 1990-91 TO 1992-93 (ANSWER TO QUESTION NO.41 PAGE 1 6) (D) THE ASSESSING OFFICER HAS GIVEN HIS FINDINGS ON PAGES 20 &21 IN THIS RESPECT AND RELIED ON THE DECISION O F MC DOWELL & CO. VS. CTO- SC REFERRED IN 154 ITR P. 148 WHICH HAS BEEN UPHELD BY THE SUPREME COURT IN THE S AID CASE AND HAS REITERATED TO EARLIER VIEW TAKEN BY TH E HOUSE OF LAW IN THE CASE OF RAMSAY VS. IRC (1982) AC 300- 2 WLR P.449 (HC) IN THE SAID DECISION WHICH HAS BEEN ENDORSED BY THE SUPREME COURT THAT IT WAS HELD THAT : 'COURTS ARE NOT OBLIGED TO STAND STILL WHERE TAX AV OIDANCE TECHNIQUES ARE CONTINUOUSLY IMPROVED. THE HOUSE OF LORD STATED THAT WHEN THERE IS A SERIES OF TRANSACTIONS, TAX SHOULD BE ASCERTAINED BY CONSIDERING THE RESULT OF THE AS ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 8 A WHOLE NOT BY DISSECTING THE SCHEME AND CONSIDERIN G INDIVIDUAL TRANSACTION SEPARATELY.' DURING THE COURSE OF APPEAL, THE APPELLANT'S COUNSE L REFERRED TO THE DECISION OF ITAT, A'BOD IN THE FOLL OWING CASES IN SUPPORT OF ITS SUBMISSION THAT THE CLAIM I S JUSTIFIED AND THAT THE DECISION OF SUPREME COURT IN MC DOWELL & CO. HAS NOT BEEN APPROVED BY ITAT. THE REL EVANT OBSERVATIONS OF THE ITAT ARE AS UNDER: '(1) UNIMATED TECHNOLOGIES LTD : ANNEXURE-I ITA NO.2456/AHD/1998:A.Y.1995-96 :ORDER DTD.16/4/19 99 (2) INTERFACE FINANCIAL SERVICES LTD : ANNEXURE -2 ITA NO.2417/AHD/1998:A.Y.1994-95 :ORDER DTD.27/10/ 1999 AT PARA 11 PAGE 10 OF THE ORDER IN THE CASE OF INTE RFACE FINANCE SERVICES LTD IS REPRODUCED AS UNDER: 'THE FAX AUTHORITIES HAVE WITH GREAT ZEAL PRESSED INTO SERVICE THE SUPREME COURT DECISION IN MC DOWELL & C O. SUPRA IN SUPPORT THE INFERENCE THAT THE TRANSACTION S INVOLVED, COLOURABLE TAX PLANNING DEVICES. WE ARE LEAST IMPRESSED WITH THE STAND OF THE TAX AUTHORITIES.. WE FEEL THAT TAKING RECOURSE TO MC DOWELL & CO. BY THE REVE NUE IN AN INDISCRIMINATE FASHION AND IN COMPLETE DISREGA RD OF THE PREVAILING BUSINESS REALITIES AS WELL BAD AND T HE CASE DOES NOT IN ANY MANNER, PROMOTE THE INTEREST OF REV ENUE OR ENHANCE ITS CREDIBILITY IN THE EYES OF THE TAX P AYERS. ONCE THE CONCEPT OF........ HAS BEEN ACCORDED LEGIS LATIVE BENEDICTION WITH THE INSERTION OF EXPLANATION TO SE C. 43 AND THE TRANSACTION IS IN CONSONANCE WITH THE ACCEP TED BUSINESS PRACTICES AS COLOURABLE DEVICES. THE CONTE NTION OF THE REVENUE IS THEREFORE REJECTED.' THE FACTS OF THE PRESENT CASE ARE TOTALLY DIFFERENT AND INFERENCE DRAWN BY THE ASSESSING OFFICER IN THE PRE SENT CASE IS BASED ON NUMBER OF CIRCUMSTANTIAL AS WELL A S DOCUMENTARY EVIDENCES INCLUDING THE PERSON WHO HAS DIRECTLY VALUED THE ASSES. THE CEO OF THE CO. HAS A LSO CONFIRMED THE REAL PURPOSE OF THE TRANSACTION. AS H ELD IN THE CASE OF RAMSAY VS. IRC, DISCUSSED ABOVE, WHICH HAS BEEN APPROVED BY THE APEX COURT IN MC DOWELL & CO. 'S ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 9 CASE AND SEVERAL OTHERS, WHAT IS TO BE SEEN IS NOT THE INDIVIDUAL TRANSACTION AS TO WHETHER THEY ARE OF LE GAL AND CORRECT BUT THE OVERALL EFFECT IT HAS ON THE TAX LI ABILITY AND WHETHER DONE WITH THE VIEW TO REDUCE THE SAME. IN T HE INSTANT CASE, I FIND THAT ALL THE REQUISITE INGREDI ENTS TO THE TRANSACTION ARE PRESENT AND THEREFORE THE DECISION OF APEX COURT IN MC DOWELL & CO. IS SQUARELY APPLICABLE IN THE PRESENT CASE. (E) SINCE THE SOURCE OF PAYMENT TO MARDIA CHEMICAL LTD, HAS NOT BEEN DISPOSED BY THE ASSESSING OFFICER AND ALSO SINCE DEPRECIATION HAS NOT BEEN ALLOWED IN THE CASE OF THE APPELLANT, THE TRANSACTION IS CONSIDERED ONLY AS A FINANCIAL TRANSACTION AND NOTHING MORE THAT. THE IN COME EARNED BY WAY OF LEASE ETC. IS THEREFORE ONLY THE B ENEFIT DERIVED BY THE APPELLANT FROM THE FUNDS ADVANCED TO THE SAID CO. WHICH IS STATED TO BE THE LESSEE. THE PLEA S OF THE APPELLANT THAT IN CASE NOT BE REDUCED, THEREFORE, C ANNOT BE ACCEPTED FOR THE ABOVE STATED REASON. (F) AS POINTED OUT BY THE ASSESSING OFFICER IN THE REMAND REPORT, THERE IS NO SPECIFIC SECTION WHICH DIRECTLY DEALS WITH 100% CLAIM OF THE PLANT I.E. ETP SUBJECT MATTE R OF DEPRECIATION IN THIS CASE. FURTHER, AS POINTED OUT BY HIM COMPLETE BREAK UP OF VARIOUS MATERIALS USED IN THE FABRICATION OF THE SAID ETP HAD NOT BEEN SUPPLIED D URING THE COURSE OF ASSESSMENT PROCEEDINGS WHICH COULD HA VE BEEN VERIFIED BY THE ASSESSING OFFICER PARTICULARLY IN THE LIGHT OF THE STATEMENT OF SH. MUKESH SHAH AND THAT HE HAD ADJUSTED THE VALUE ON ACCOUNT OF INFLATION OF V ARIOUS INPUTS ETC. (G) THE PLEA OF THE APPELLANT THAT NO CROSS EXAMINA TION HAS BEEN ALLOWED TO THE APPELLANT PARTICULARLY WITH REFERENCE TO SH. MUKESH SHAH AND THEREFORE NO ADVER SE VIEW CAN BE TAKEN IS NOT ACCEPTABLE SINCE THE INFER ENCE AND THE FINDINGS OF THE ASSESSING OFFICER ARE NOT E NTIRELY BASED ON HIS STATEMENT BUT INCLUDE THE CLAIM OF EVE NTS WHICH INDICATE THAT THE PURPOSE WAS TO REDUCE THE T AX LIABILITY . STATEMENT OF SH. CHAKRABORTY AND SH. MU KESH SHAH NEVERTHELESS HAVE EVIDENTIAL VALUE AND CAN BE CONSIDERED AS ONE OF THE FACTORS FOR TAKING THE OVE RALL ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 10 CONCLUSION REGARDING THE ADMISSIBILITY OF DEPRECIAT ION. IN VIEW OF THE ABOVE REASONS, DEPRECIATION CLAIM OF RS . 7,20,00,000/- IS THEREFORE RIGHTLY DISALLOWED BY TH E ASSESSING OFFICER AND THE ADDITION IS CONFIRMED. ' 3.4 SINCE THE AFORESAID ISSUE HAS BEEN DEALT WITH I N THE AFORESAID ORDER AFTER CONSIDERING ALL THE ARGUMENTS OFASSESSEE, THE SAME WERE FOLLOWED BY CIT(A). ACCO RDING TO CIT(A), THE DISALLOWANCE ON DEPRECIATION HAS BEEN M ADE NOT ONLY ON THE BASIS OF DOCUMENTS SEIZED DURING THE SE ARCH BUT ALSO ON THE BASIS OF POST SEARCH INVESTIGATION AND OTHER ENQUIRIES CONDUCTED BY THE ASSESSING OFFICER, THE DISALLOWANCES/ ADDITIONS HAS TO BE MADE IN REGULAR ASSESSMENT AS AGAINST THE BLOCK ASSESSMENT. IN ANY, BLOCK ASSESSMENT NOW HAS BEEN ANNULLED; THE ADDITION IS M ADE IN REGULAR ASSESSMENT ONLY. CIT(A) ULTIMATELY HELD TH AT ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING THE DEPRECIATION IN REGULAR ASSESSMENT. EVEN, ON MERIT , CIT(A) CONFIRMED THE ORDER OF ASSESSING OFFICER. 3.5 BEFORE US, LD. AUTHORIZED REPRESENTATIVE SUBMIT TED THAT CIT(A) ERRED IN LAW AND ON FACTS IN NOT CONSIDERING THE ASSESSEES PRAYER TO DELETE THE DISALLOWANCE MADE B Y ASSESSING OFFICER WHILE MAKING ASSESSMENT U/S.143(3 ) OF THE ACT ON THE BASIS OF EVIDENCE FOUND AND MATERIAL AVA ILABLE AS A RESULT OF SEARCH CONDUCTED BY AUTHORIZED OFFICERS U/S.132 OF THE ACT. LD. AUTHORIZED REPRESENTATIVE ALSO REL IED ON CERTAIN CASE LAWS IN HIS FAVOUR WITH LEGAL SUBMISSI ONS AND SUBMITTED THAT CIT(A) ERRED IN UPHOLDING THE DEPREC IATION OF ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 11 RS.7,20,00,000/- ON EFFLUENT TREATMENT PLANTS AND RS.3,17,28,794/- ON CINEMATOGRAPHIC FILMS. SAME SH OULD BE SET ASIDE. ON THE OTHER HAND, LEARNED DEPARTMENTAL REPRESENTATIVE SUPPORTED THE ORDER OF CIT(A). 3.6 AFTER GOING THROUGH RIVAL SUBMISSIONS AND MATER IAL ON RECORD, WE FIND THAT ISSUE BEFORE US IS REGARDING D ISALLOWANCE OF DEPRECIATION ON ABOVE ACCOUNTS IN REGULAR ASSESS MENT. ASSESSEE COMPANY CARRIES ON BUSINESS MAINLY OF LEAS ING & FINANCING. A SEARCH AND SEIZURE PROCEEDINGS WERE C ARRIED OUT AT BUSINESS PREMISES ON 09.01.1997 AND DURING COURS E OF PROCEEDINGS, VARIOUS DOCUMENTS WERE SEIZED. ON THE BASIS OF SEIZED MATERIAL, ASSESSING OFFICER IN ASSESSMENT OR DER U/S.143(3) OF THE ACT DATED 27.03.1998, DISALLOWED THE DEPRECIATION OF RS.7,20,00,000/- ON EFFLUENT TREATM ENT PLANTS AND RS.3,17,28,794/- ON CINEMATOGRAPHIC FILM S AND ALSO ON AIR CONDITIONER. FURTHER, THE BLOCK ASSESS MENT ORDER WAS PASSED ON 23.03.1999 ON THE SAME ISSUE AND SIMI LAR ADDITIONS WERE MADE. 3.7 THE SAID ACTION OF ASSESSING OFFICER WAS ALSO C ONFIRMED BY CIT(A), AGAINST WHICH, ASSESSEE COMPANY HAS FILE D APPEAL BEFORE THE ITAT. ITAT VIDE ITS ORDER DATED 30.08.2 006 SET ASIDE THE ORDER OF CIT(A) AND REMITTED THE MATTER T O HIS FILE WITH CERTAIN DIRECTIONS AS STATED IN PARA 3 OF THE ORDER. 3.8 THOUGH THE ASSESSMENT U/S.143(3) OF THE ACT AND BLOCK ASSESSMENT ARE BOTH MUTUALLY EXCLUSIVE AND COULD GO ON ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 12 SIMULTANEOUSLY, THERE WAS A DIFFERENCE IN THEIR SCO PE AND BOTH SAND TO OPERATE ON DIFFERENT FIELDS. UNDISCLO SED INCOME IS A SUBJECT MATTER OF BLOCK ASSESSMENT PROCEEDINGS , WHEREAS IN REGULAR ASSESSMENT PROCEEDINGS, ASSESSING OFFICE R IS TO COMPUTE REGULAR INCOME AS DISCLOSED IN THE BOOKS OF ACCOUNT AFTER APPLYING RELEVANT PROVISIONS OF ACT. 3.9 SECTION 158B OF THE ACT GIVES THE DEFINITION OF UNDISCLOSED INCOME INTER ALIA STATED THAT UNDISCLOS ED INCOME INCLUDES ANY MONEY, BULLION, JEWELLERY OR OTHER VAL UABLE ARTICLE OR THING OR ANY INCOME BASED ON ANY ENTRY I N OTHER DOCUMENTS OR TRANSACTIONS, WHERE SUCH MONEY, BILLIO N, JEWELLERY, VALUABLE ARTICLE, THING, ENTRY IN THE DO CUMENT OR TRANSACTION REPRESENTS WHICH HAS NOT BEEN OR WOULD DISCLOSED FOR THE PURPOSES OF THIS ACT OR ANY EXPEN SE, DEDUCTION OR ALLOWANCE CLAIMED UNDER THIS ACT. THE ACT PRESCRIBES A SPECIFIC PROVISION OF ASSESSMENT OF SE ARCH CASES COVERED UNDER CHAPTER XIV-B OF THE ACT. THE ESSENC E OF THE SPECIAL PROCEDURE OF CHAPTER XIV-B IS TO PROVIDE FO R AN ASSESSMENT OF THE UNDISCLOSED INCOME DETECTED AS A RESULT OF SEARCH WITHOUT AFFECTING THE REGULAR ASSESSMENTS MA DE OR TO BE MADE. THE SPECIAL PROVISIONS ARE DEVISED TO OPE RATE IN THE SEPARATE FIELD OF UNDISCLOSED INCOME AND ARE CLEARL Y IN ADDITION TO REGULAR ASSESSMENTS COVERING THE PREVIO US YEARS FALLING IN BLOCK PERIOD. THEREFORE, ASSESSMENT OF UNDISCLOSED INCOME AS A RESULT OF SEARCH IS TO BE DONE ACCORDIN G TO THE PROVISIONS OF SECTION 158BA OF THE ACT. ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 13 3.10 AS PER PROVISIONS OF CHAPTER XIV-B, IN BLOCK ASSESSMENT, ADDITIONS CAN BE MADE FOR INCOME WHICH IS RELATABLE TO EVIDENCE UNEARTHED DURING THE COURSE O F SEARCH. ANY OTHER INCOME WOULD BE OUTSIDE THE PURVIEW OF BL OCK ASSESSMENT AND CAN ONLY BE ADDED IN THE REGULAR ASS ESSMENT PROCEEDINGS. CONVERSELY, IN THE REGULAR ASSESSMENT, NO ADDITION CAN BE MADE FOR INCOME WHICH HAS ITS GENES IS IN MATERIALS FOUND DURING THE COURSE OF SEARCH. IN OTH ER WORDS, BLOCK ASSESSMENT AND REGULAR ASSESSMENT ARE MUTUALL Y EXCLUSIVE. WHILE IN BLOCK ASSESSMENT, ADDITION CAN ONLY BE MADE FOR UNDISCLOSED INCOME DISCOVERED DURING COURS E OF SEARCH; SUCH INCOME CANNOT BE THE SUBJECT MATTER OF REGULAR ASSESSMENT. ITAT, DELHI BENCH IN CASE OF KAPIL DEV VS. JCIT (ITA NO. 2259/DEL/2002) HAS HELD SIMILAR LINE. 3.11 THE DISALLOWANCE OF DEPRECIATION WAS MADE ON T HE BASIS OF MATERIAL SEIZED DURING SEARCH AND HENCE SAME CAN NOT FORM THE BASIS FOR COMPLETING REGULAR ASSESSMENT U/ S. 143(3) OF THE ACT. AT PARA 2 ON PAGE NO. 2 OF THE ASSESSME NT ORDER, DATED 27-03-1998, PASSED U/S 143(3) OF THE ACT, THE ASSESSING OFFICER HAS HIMSELF NOTED THE FACT OF A S EARCH AND SEIZURE PROCEEDINGS BEING CARRIED OUT AT THE BUSINE SS PREMISES OF THE ASSESSEE ON 9/10.01.1997. FOR THE SAID DISALLOWANCE, ASSESSING OFFICER HAS RELIED UPON THE STATEMENT RECORDED U/S.132 OF THE ACT, I.E. STATEME NT OF SHRI CHAKRABORTY, CEO, STATEMENT OF SHRI V.R.S. SAMPAT D ATED 03.02.1997 AND STATEMENT OF SHRI MUKESH SHAH. THER EFORE, ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 14 THE ADDITION MADE IN REGULAR ASSESSMENT ON THE BASI S OF MATERIAL SEIZED DURING SEARCH AND STATEMENTS RECORD ED DURING SEARCH IS NOT JUSTIFIED. SUCH ADDITIONS CAN ONLY BE MADE DURING BLOCK ASSESSMENT AS PER THE PROVISIONS OF CHAPTER XIV-B OF THE ACT. ITAT CHENNAI BENCH IN CA SE OF ITO VS. T. MOHAN RAO. DATED JUNE 23.2006. BEARING TAX A PPEAL NO.3241 (MDS.) OF 2004 HELD AS UNDER: THE ABOVE EXPLANATION LEFT NO DOUBT THAT THERE CAN BE A REGULAR ASSESSMENT EVEN OF THE BLOCK PERIOD IN ADDI TION TO THE ASSESSMENT OF UNDISCLOSED INCOME UNDER CHAPTER XIV-B OF THE INCOME-TAX ACT. BUT, THE SEIZED MATERI AL CAN BE USED ONLY FOR THE PURPOSE OF DETERMINING UNDISCL OSED INCOME OF THE BLOCK PERIOD. THE SEIZED MATERIAL IN OUR OPINION CANNOT BE USED FOR THE PURPOSE OF REOPENING OF THE ASSESSMENT. REOPENING HAS TO BE DONE ON THE BAS IS OF INDEPENDENT INFORMATION AVAILABLE WITH THE ASSESSIN G OFFICER WHICH PRIMA FACIE SHOWS ESCAPEMENT OF INCOM E. IN THE PRESENT CASE, THE MAIN REASON FOR REOPENING ASSESSMENT IS THE SEIZED MATERIAL FOUND DURING THE COURSE OF SEARCH AND THE ADDITION IN THE REOPENED ASSESSME NT IS ALSO ON THE BASIS OF SEIZED MATERIAL. BOTH REOPENIN G AND ADDITION ARE ON THE BASIS OF SEIZED MATERIAL AND IT CANNOT BE HELD VALID. IN VIEW OF THIS, WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CIT (APPEALS). ACCORDINGLY, WE UPHOLD HIS ORDER ON THIS ISSUE AND REJECT THE GROUND TAKEN BY THE REVENUE. 3.12 CIT(A) CONFIRMED THE DISALLOWANCE ON THE BASIS THAT SINCE THE DISALLOWANCE HAS BEEN MADE NOT ONLY ON TH E BASIS OF DOCUMENTS SEIZED DURING THE SEARCH BUT ALSO ON T HE BASIS OF POST SEARCH INVESTIGATION CONDUCTED BY THE ASSES SING OFFICER, THEREFORE THE DISALLOWANCE/ADDITIONS HAS T O BE MADE IN REGULAR ASSESSMENT AS AGAINST BLOCK ASSESSMENT. IN THIS REGARD, IT IS PERTINENT TO NOTE THAT SECTION 158BB( 1) HAS BEEN ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 15 AMENDED, W.E.F. 01.07.1995, TO CLARIFY THAT THE BLO CK ASSESSMENT OF UNDISCLOSED INCOME HAS TO BE BASED ON THE EVIDENCE FOUND IN THE SEARCH AND MATERIAL, OR INFOR MATION GATHERED IN POST-SEARCH INQUIRIES MADE ON THE BASIS OF EVIDENCE FOUND IN THE SEARCH AS HELD BY THE HON'BLE M.P. HIGH COURT IN CASE OF CIT VS. KHUSHLAL CHAND NIRMAL KUMAR (2003) 263 ITR 77, 82 (MP). THE HON'BLE GAUHATI HI GH COURT IN THE CASE OF CIT VS. BIMAL AUTO AGENCY (2009) 314 ITR 191 HAS ALSO HELD AS UNDER: 'A READING OF THE PROVISIONS OF S. 158BB, AS IT EXI STED BEFORE AND AFTER AMENDMENT, AMPLY DISCLOSES THAT EV EN PRIOR TO THE AMENDMENT, S. 158BB AUTHORISED THE AO TO MAKE AN ASSESSMENT OF UNDISCLOSED INCOME ON THE BAS IS OF EVIDENCE FOUND AS A RESULT OF 'SEARCH... AND SUC H OTHER MATERIALS OR INFORMATION AS MAY BE AVAILABLE WITH T HE AO'. THE USE OF THE WORD 'SUCH' CLEARLY POINTS OUT THAT SUCH MATERIALS OR INFORMATION MUST HAVE SAME CONNECTION WITH THE SEARCH AND DO NOT CONSTITUTE INDEPENDENT MATERI ALS, I.E., INDEPENDENT OF THE SEARCH.' 3.13 SINCE, IN CASE BEFORE US, POST SEARCH ENQUIRIE S ARE DIRECTLY RELATABLE TO THE EVIDENCE RECOVERED DURING THE COURSE OF THE SEARCH. THEREFORE, THE ADDITION, IF ANY, COU LD ONLY BE MADE IN THE BLOCK ASSESSMENT PROCEEDINGS AND NOT IN REGULAR ASSESSMENT PROCEEDINGS. ASSESSING OFFICER HAS SPEC IFICALLY NOTED ON PAGE NO. 31, PARA 11.1 OF THE BLOCK ASSESS MENT ORDER THAT 'SINCE THE UNDISCLOSED INCOME HAS TO BE TAXED IN BLOCK ASSESSMENT AS PER PROCEDURE LAID DOWN IN CHAP TER XIV B OF THE ACT, THE UNDISCLOSED INCOME WORKED OUT IS TAXED IN THIS BLOCK ASSESSMENT ORDER.' THUS, ASSESSING OFFI CER WAS CLEAR THAT IN BLOCK ASSESSMENT DISALLOWANCE/ADDITIO N IS TO BE ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 16 MADE ON THE BASIS OF SEIZED MATERIAL. SINCE AS PER EXPLANATION TO SECTION 158 BA OF ACT, THE INCOME AS SESSED IN THIS CHAPTER SHALL NOT BE INCLUDED IN THE REGULAR A SSESSMENT OF ANY PREVIOUS YEAR INCLUDED IN THE BLOCK PERIOD. THEREFORE, DISALLOWANCE MADE IN REGULAR ASSESSMENT WAS NOT JUS TIFIED. WE FIND THAT SIMILAR VIEW HAS BEEN TAKEN BY MUMBAI I BENCH IN CASE OF HDFC BANK LTD. VS. JCIT IN ITA NOS.1544/MUM/2000 & ORS., WHEREIN SIMILAR ISSUE HAS BEEN DEALT BY OBSERVING AS UNDER: 3.4 WE HAVE CAREFULLY GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. WE HAVE ALSO CONSIDERED THE DECI SION OF THE TRIBUNAL DELHI BENCH IN THE CASE OF KAPIL DEV ( SUPRA). THE RELEVANT PORTION OF THE DECISION OF THE TRIBUNA L DELHI BENCH READ AS UNDER: '11.1 THE MAIN QUESTION WHICH THUS ARISES BEFORE US IS IF IT ALL THE SEIZED MATERIAL REPRESENTED UNDISC LOSED INCOME OF THE ASSESSEE, WHETHER THE PROCEDURE PRESCRIBED BY SEC. 158BD WAS TO BE MANDATORILY FOLLOWED AND HAVING FAILED TO DO SO, WHETHER THE MATERIAL COULD BE USED BY AO IN REGULAR ASSESSMENT U/S 143(3), BY GOING BEYOND I) CHAPTER XIV-B; AND I I) FINDINGS GIVEN BY DCIT(INV.), MUMBAI. 11.2. THE LEGISLATURE W.E.F. 1-7-1995 ENACTED A SPECIAL PROCEDURE FOR ASSESSMENT OF UNDISCLOSED INCOME ON THE BASIS OF SEIZED MATERIAL FOUND DURING THE COURSE OF SEARCH. PROCEDURE WAS DEVISED FIRSTLY TO IMPOSE A TAX OF 60% AS AGAINST THE REGULAR RATE OF TAX AND SECONDLY TO ENABLE THE AO TO MAKE BLOCK ASSESSMENT IN RESPECT OF 6 YEARS IN SUBSTITUTION OF THE REGULAR ASSESSMENT PROCEEDINGS. CHAPTER X IV-B IS NAMED AS 'SPECIAL PROCEDURE FOR ASSESSMENT OF UNDISCLOSED INCOME AS A RESULT OF SEARCH'. SECTION 158BA(1) IS PRECEDED BY NON-OBSTINATE CLAUSE 'NOTWITHSTANDING ANYTHING CONTAINED IN ANY ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 17 PROVISIONS OF THIS ACT'. A PLAIN READING OF THESE PROVISIONS REVEALS THAT IN CASE THE AO HAVING JURISDICTION ON THE SEARCHED PERSON FINDS THAT SOME SEIZED MATERIAL INDICATES UNDISCLOSED INCOME OF ANY OTHER PERSON, IN THAT CASE HE SHOULD FORWARD A REFERENCE U/S 158BD AFTER RECORDING A PROPER SATISFACTION AND BEFORE COMPLETION OF BLOCK ASSESSMENT. THEREAFTER THE OTHER PERSON'S AO IS REQUIRED TO PROCEED ACCORDING TO SEC. 158BD READ WITH SEC. 158BC. WITH THIS OVER-RIDING PROVISION ON THE STATUTE, IN OUR CONSIDERED VIEW, THE ADDITION, IF AT ALL COULD HAVE BEEN CONSIDERED IN THE HANDS OF ASSESSEE U/S 158BD AND NOT REGULAR ASSESSMENT U/S 143(3). THE PROCEDURE PRESCRIBED IS MANDATORY, BESIDES IT IS EXPLICIT FROM THE BLOCK ASSESSMENT OR DER OF RC THAT HIS AO, DID NOT CARRY A SATISFACTION THA T THE DIARY IN ANY WAY REPRESENTED UNDISCLOSED INCOME OF THE ASSESSEE. IT HAS BEEN OBSERVED IN RC'S BLOCK ASSESSMENT THAT KAPIL DEV HAS DENIED THE CASH ENTRIES IN DIARY AND THEREFORE AFTER CONSIDERING TH E EVIDENCE, FACTS AND CIRCUMSTANCES, THE ADDITION WAS MADE IN THE HANDS OF RC. THUS, THREE IMPORTANT FACTORS EMERGE FROM THE BLOCK ASSESSMENT ORDER OF RC: (I) ASSESSEE'S EXPLANATION WAS CONSIDERED DURING BLOCK ASSESSMENT PROCEEDINGS AND IT WAS HELD THAT THE SEIZED MATERIAL REPRESENTED UNDISCLOSED INCOME OF RC AND NOT THE ASSESSEE. (II) NO INDICATION IS GIVEN THAT THE CASH ENTRIES IN DIARY MAY ALSO AMOUNT TO KAPIL DEV'S INCOME. (III) NO SATISFACTION U/S 158BDWAS COMMUNICATED TO THE ASSESSEE'S AO. 113. IN VIEW OF THESE OBSERVATIONS, WE ARE INCLINED TO HOLD THAT IF THE DEPARTMENT PROPOSED TO MAKE AN ASSESSMENT BASED ON SEARCHED MATERIAL, THEN THE COURSE AVAILABLE TO IT WAS TO PROCEED AS P ER THE PROVISIONS OF CHAPTER XTV-B I.E. SEC. 158BD REA D WITH SEC. 158BC OF THE ACT AND NOT U/S 143(3) ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 18 11 4. HON'BLE DELHI HIGH COURT IN THE CASE OF R.K. JAM (SUPRA) HAS OBSERVED THAT IN CASE OF SEARCH MATERIAL, THE SAME IS TO BE ASSESSED BY WAY OF BLOC K ASSESSMENT UNDER CHAPTER XTV-B. SIMILAR VIEW IS ECHOED BY HON'BLE BOMBAY HIGH COURT IN THE CASE OF DR. M.K. E. MENON AND BY HON'BLE GUJARAT HIGH COURT IN N.R. PAPER & BOARD LTD. & OTHERS (SUPRA). A SIMILAR VIEW HAS BEEN UPHELD BY HON'BLE SUPREME COURT IN THE CASE OF MANISH MAHESHWARI (SUPRA). IN VIEW OF ABOVE, WE ARE OF THE VIEW THAT THE IMPUGNED ADDITION OF RS.83 LACS CANNOT BE MADE IN THE HANDS OF THE ASSESSEE ON PROTECTIVE BASIS BY TAKING RECOURSE TO SEC. 143(3). THUS, THE ADDITIONAL GROUN D OF THE ASSESSEE IS ALLOWED. 11.5. THE APPEAL IS VERY OLD, FILED WAY BACK IN 200 2. THEREFORE, WE WOULD LIKE TO DECIDE THE MERITS OF TH E ADDITION. IT EMERGES FROM RECORD THAT: (I) ASSESSEE'S STAND WAS EXAMINED IN THE COURSE OF BLOCK ASSESSMENT OF RC, THERE ALSO HE DENIED HAVING ANY CONNECTION WITH THE DIARIES CASH ENTRIES MADE IN THE HANDWRITING OF RC. (II) DURING THE COURSE OF SEARCH IN RC'S PREMISES AND IN SUBSEQUENT SEARCH OF THE ASSESSEE'S PREMISES, NO CORROBORATIVE INCRIMINATING EVIDENCE WAS FOUND TO SUGGEST SUCH CASH PAYMENTS OR ASSETS OF SAID FIRM M/S DEV YOGI DEVELOPERS. (III) LOWER AUTHORITIES HAVE SOLELY RELIED ON VARIOUS UNCORROBORATED EVIDENCE INCLUDING THE FACT THAT IN THE DIARY TWO CHEQUE ENTRIES MATCH WITH ASSESSEE'S RECORD IN RESPECT OF HIS CAPITAL CONTRIBUTION IN THE FIRM M/S DEV YOGI DEVELOPERS, THEREFORE, IT IS TO BE INFERRED THAT AL L THE CASH ENTRIES MENTIONED IN RC'S SEIZED DIARY BELONGED TO THE ASSESSEE. HAD THE PAPER BEEN IN THE HANDWRITING OF ASSESSEE, THIS PRESUMPTION COULD HAVE SOME RELEVANCE, BUT WITH STARK REALITY OF THE DIARY BEING WRITTEN IN THE HAND OF 'RC' AND FOUND IN HIS PREMISES DURING THE COURSE OF SEARCH; IN OUR VIEW, SUCH ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 19 INFERENCES ARE SHAKY AND HAVE NO LEGS TO STAND EXCEPT CREATING A SUSPICION. (IV) THE STATUTORY PRESUMPTION U/S 132(4A) HAS BEEN RAISED AGAINST RC AND ADDITION CONFIRMED IN HIS HANDS BY BLOCK ASSESSMENT U/S 158BD. (V) THE ASSESSEE HAD WITHDRAWN FROM THE FIRM M/S DEV YOGI DEVELOPERS IN APRIL 1997 AND RC WAS SEARCH ON 4/5 SEPT. 1997. ASSESSEE ON ALL FORUMS CONTENDED THAT HE WAS NOT COMFORTABLE WITH THE PARTNERSHIP, WHICH IS CORROBORATED BY THE FACT THAT CHEQUES ISSUED BY RC BOUNCED. ON MEASURES OF PREPONDERANCE OF PROBABILITIES ALSO THE STATEMENT OF RC WHICH IS NOT EVEN BELIEVED BY HIS AO, CANNOT IMPLICATE THE ASSESSEE WITHOUT THERE BEING A CORROBORATIVE EVIDENCE. THERE CANNOT BE A PROTECTIVE ASSESSMENT ON THE BASIS OF ABOVE ASSUMPTIONS AND FACTS WITH A BALD DIRECTION THAT IF THE ADDITION IS NOT MADE IN THE HANDS OF RC, THE SAME SHOULD BE ADDED IN THE HANDS OF THE ASSESSEE. (VI) ON FRAMING OF PROTECTIVE ASSESSMENT U/S 143(3) ALSO THE ARGUMENT OF ID. COUNSEL MERITS CREDENCE. THE SPECIAL PROVISIONS OF THE ACT PRESCRIBE AN ASSESSMENT BASED ON SEARCHED MATERIAL ITSELF AND VESTS POWER IN AO TO INITIATE PROCEEDINGS U/S 158BD READ WITH SEC. 158BC IN THE HANDS OF OTHER PERSONS. THUS, THE AO HAS TO RECORD SATISFACTION EITHER TO THE EFFECT THAT THE SEIZED MATERIAL BELONGED TO THE SEARCHED PERSON OR THE OTHER PERSON. 11.6. IN THE LIGHT OF FOREGOINGS, WE DELETE THE ADDITION OF RS.83 LACS ON MERIT ALSO.' 3.5 THE ONLY DISTINGUISHING FACT IF AT ALL IS THAT IN THE CASE OF KAPIL DEV (SUPRA) A DIARY WAS FOUND BY THE SEARC H PARTY AND IN THE CASE HI HAND ON PHYSICAL INVESTIGATION M ADE DURING THE SEARCH OF REPL BOGUS TRANSACTION CAME TO THE NOTICE OF THE DEPARTMENT. IN OUR CONSIDERED OPINION , THESE FACTS CANNOT BE SAID TO BE DISTINGUISHABLE IN THE LIGHT OF THE PROVISIONS OF SECTION 158 BD. THEREFOR E, ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 20 RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH WE SET ASIDE THE ORDER OF LD. CIT(A) AND DIRE CT THE AO TO DELETE THE ADDITION ON ACCOUNT OF DEPRECIATIO N. GROUND NO.2 IS ALLOWED. 4. IN VIEW OF THE ABOVE LEGAL AND FACTUAL DISCUSSIO N, ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLO WANCE OF DEPRECIATION IN QUESTION MADE BY HIM IN ASSESSMENT ORDER U/S.143(3) OF THE ACT ON THE BASIS OF EVIDENCES FOU ND AND MATERIAL AVAILABLE AS A RESULT OF SEARCH CONDUCTED BY AUTHORIZED OFFICERS U/S.132 OF THE ACT. SAME IS DI RECTED TO BE DELETED. 5. AS A RESULT, APPEAL FILED BY ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON THIS THE 27 TH DAY OF JULY, 2016. SD/- SD/- (N. K. BILLAIYA) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBE R AHMEDABAD: DATED 27/07/2016 S.K.SINHA / COPY OF ORDER FORWARDED TO:- / REVENUE !# / ASSESSEE $ %&%'( ) / CONCERNED CIT * )+ / CIT (A) ,-./00'(1 '( 123#&# / DR, ITAT, AHMEDABAD 4/5678 / GUARD FILE. BY ORDER / #9 1 :; 2% '( 123#&#< ITA NO.832/AHD/12 A.Y. 95-96 (AKAR LEASING AND FINANCIAL SERVICES LTD. VS. DCIT) PAGE 21 1.DATE OF DICTATION 22.07.2016 2.DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE TH E OTHER MEMBER 26-07-2016 3.DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S. 4.DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT 5.DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR .P.S./P.S 6.DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 7.DATE ON WHICH THE FILE GOES TO THE HEAD CLERK . 8.THE DATE ON WHICH THE FILE GOES TO THE ASSTT. REG ISTRAR FOR SIGNATURE ON THE ORDER 9.DATE OF DESPATCH OF THE ORDER