TATA MOTORS LTD. (SUCCESSOR TO TATA FINANCE LTD), MUMBAI V. JCIT SP RG. 13, MUMBAI

ITSSA 237/MUM/2005

• Counselvise Citation: [2016] 122 COUNSELVISE.COM (IT) 2275 (ITAT-MUMBAI)
• Duration Of Justice: 11 year(s) 1 month(s) 27 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 29-07-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 16-04-2015
• Assessment Year: misc
• Appeal Filed On: 02-06-2005
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: K MOHANDASDR
• Assessee Lawyers: DINESH VYASAR
• Keywords: Business income; Depreciation; Document seized; Period of limitation; Bad and doubtful debts; Block assessment; Documents seized
• Section: 148; 132

Judgement Text

1 , INCOME-TAX APPELLATE TRIBUNAL -CBENCH MUMBAI , , BEFORE S/SH.RAJENDRA,ACCOUNTANT MEMBER AND PAWANSIN GH,JUDICIAL MEMBER ./I.T.(SS)A./237/MUM/2005, /BLOCK PERIOD :1989-90 TO 1998-99 TATA MOTORS LTD. (SUCCESSOR TO TATA FINANCE LTD.) TATA MOTORS LTD.BOMBAY HOUSE, 24, HOMI MODY STREET, HUTATMA CHOWK MUMBAI-400 001. PAN:AAACT 1269 F VS. JCIT, SPL RANGE-13 MUMBAI. ( /APPELLANT ) ( / RESPONDENT) REVENUE BY: SHRI K. MOHANDAS-DR ASSESSEE BY: SHRI DINESH VYAS-AR / DATE OF HEARING: 29.07.2016 / DATE OF PRONOUNCEMENT: 29.07.2016 ,1961 254(1) ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA, AM - CHALLENGING THE ORDER,DATED 30/03/2005,OF THE CIT ( A)-X,MUMBAI, THE ASSESSEE HAS FILED THE PRESENT APPEAL.ASSESSEE COMPANY IS A NON-BANKING FI NANCE COMPANY AND IS ENGAGED IN THE BUSINESS OF HIRE PURCHASE,LEASING AND OTHER RELATED FINANCIAL ACTIVITIES. BRIEF FACTS: DURING THE AY. 1996-97,THE ASSESSEE HAD ENTERED INT O A LEASE AGREEMENT WITH RAJINDER STEEL LTD.(RSL) FOR THE ASSETS COSTING RS. 1.98 CRORES. T HOSE ASSETS WERE ELIGIBLE FOR DEPRECIATION AT THE RATE OF 25%. FOR THE BLOCK PERIOD UNDER REFERENCE,T HE ASSESSEE HAD CLAIMED DEPRECIATION AGGREGA -TING RS.2.01,00,88,204/- ON THOSE ASSETS.AN ACTION U/S.132 (1) OF THE ACT WAS CARRIED OUT IN THE CASE OF RAJINDER STEEL LTD.(RSL)ON 05/03/1998.DURIN G THE SEARCH ACTION IT WAS OBSERVED THAT ASSETS IN QUESTION,CLAIMED TO BE SOLD BY THE ASSESS EE,WERE NOT AT ALL IN EXISTENCE, THAT COMPANY TO WHOM THE ASSESSEE HAD MADE PAYMENT FOR THE MACHINER Y BELONGED TO SAME GROUP.THE ASSESSING OFFICER(AO) ISSUED NOTICE U/S. 158BD FOR WITHDRAWAL OF THE DEPRECIATION, HOLDING THAT THE CLAIM MADE BY THE ASSESSEE WAS FOUND TO BE FALSE. THEREAF TER,THE AO PASSED IN ORDER U/S.158BC (C) IT(SS)A-237/M/05-(BP:89-90 TO 98-99) TATA MOTORS 2 R.W.S.158BD OF THE ACT,ON 29/03/ 2001,DETERMINING T HE TOTAL UNDISCLOSED INCOME OF THE ASSESSEE FOR THE BLOCK PERIOD AT RS. 1, 00, 88, 204/. 3 .AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE PRE FERRED AN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY(FAA).BEFORE HIM,IT WAS ARGUED THAT THE AO HAD INITIATED ASSESSMENT PROCEEDINGS ON THE BASIS OF THE SEARCH CARRIED OUT AT THE PREMISES OF RSL,THAT THE ASSETS HAD BEEN ACQUIRED BY THE ASSESSEE IN THE MONTH OF MARCH, 1996, THAT THE SEAR CH PROCEEDINGS TOOK PLACE IN THE MONTH OF MARCH, 1998, THAT IN THE REGULAR ASSESSMENT PROCEED INGS FOR THE AY.S 1996-97 TO 1998-99 THE LEASE RENT HAD BEEN TAXED AS BUSINESS INCOME IN THE HANDS OF THE ASSESSEE AND DEPRECIATION WAS ALLOWED AS UNDER: A.Y. LEASE INCOME ( RS.) DEPRECIATION (RS.) NET INC OME (RS.) 1996-97 16,58,314/- 24,83,250/- (8,24,936) 1997-98 66,33,256/- 43,45,688/- 22,87,568/- 1998-99 82,91,570/- 32,59,266/- 50,32,304/- TOTAL 1,65,83,140/- 1,00,88,204/- 64,94,936/- IT WAS FURTHER ARGUED THAT DURING THE COURSE OF SEA RCH IN THE CASE OF RSL AND IN THE POST SEARCH INVESTIGATION NO EVIDENCE WAS FOUND SUGGESTING THAT THE ASSESSEE WAS PARTY TO THE UNSCRUPULOUS ACTIVITIES OF THE RSL, THAT BEFORE ANY PROCEEDINGS WERE TO BE INITIATED U/S.158 BD THE AO HAD TO BE SATISFIED THAT FROM THE MATERIAL SEIZED FROM THE PREMISES OF ONE PERSON SOME UNDISCLOSED INCOME BELONGING TO ANOTHER PERSON WAS FOUND,THAT O NLY AFTER OBTAINING SUCH SATISFACTION PROCEEDINGS IN THE CASE OF OTHER PERSON COULD BE IN ITIATED,THAT BASED ON THE MATERIAL AND INFORMATION GATHERED DURING THE COURSE OF SEARCH ON RSL IT COULD NOT BE SAID THAT THE DEPRECIA - TION CLAIMED BY THE ASSESSEE HAD BEEN WRONGLY CLAIM ED.THE ASSESSEE RELIED UPON THE CASES OF VEDPRAKASH SANJAYKUMAR(107TAXMAN242),SUMAN DHANJI Z ALTE(72ITR132-AT). IT WAS FURTHER ARGUED THAT THE AO DENIED DEPRECIATION, CLAIMED BY THE ASSESSEE AS UNDISCLOSED INCOME EVEN BEFORE ASSERTING AS TO WHETHER THE DEPRECIATION CLA IMED BY THE ASSESSEE COULD BE TREATED AS UNDISCLOSED INCOME, THAT THE LEASE TRANSACTIONS HAD BEEN REFLECTED IN THE BOOKS OF ACCOUNTS, THAT DEPRECIATION CLAIMED HAD BEEN DULY ALLOWED IN THE R EGULAR ASSESSMENTS, THAT THE LEASE RENTALS HAD BEEN OFFERED TO TAX AND ASSESSED AS SUCH FOR EACH O F THE AFORESAID AY.S, THAT NO INCOME COULD BE SAID TO HAVE REMAINED UNDISCLOSED, THAT THERE WAS N O NEXUS BETWEEN THE MATERIAL SEIZED DURING THE COURSE OF SEARCH AND THE UNDISCLOSED INCOME ASS ESSED IN THE HANDS OF THE ASSESSEE, THAT THE IT(SS)A-237/M/05-(BP:89-90 TO 98-99) TATA MOTORS 3 AMENDMENT TO INCLUDE THE DISALLOWANCE/APPRECIATION IN THE CHAPTER XIV-B WERE INTRODUCED BY THE FINANCE ACT, 2002, THAT THE AO ERRED IN COMPUTI NG THE UNDISCLOSED INCOME AT RS. 1,00,80, 204/-,THAT THE INCOME HAD TO BE REDUCED FROM THE DE PRECIATION CLAIM, THAT RSL HAD SYSTEMATICALLY DUE TO THE LARGE NUMBER OF BANKS, NATIONALISED BANK S NBFCS, THAT THE DEPARTMENT HAD ALSO GIVEN A CATEGORICAL FINDING THAT RSL NEVER EVER INTENDED TO PAY ANY LEASE RENT,THAT THE BAD DEBTS CLAIMED BY THE ASSESSEE WAS ALLOWABLE U/S. 36 OF TH E ACT,THAT THE LOAN WAS ADVANCED BY THE ASSESSEE IN ITS ORDINARY COURSE OF BUSINESS OF BANK ING/MONEYLENDING. THE ASSESSEE MADE CERTAIN ALTERNATIVE ARGUMENTS ALSO. 3.1. AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, T HE FAA REFERRED TO THE PROVISIONS OF SECTION 158BD OF THE ACT AND HELD THAT TWO EQUIPMEN TS CLAIMED TO BE SOLD BY THE ASSESSEE WERE NOT FOUND AT THE GIVEN PLACE DURING THE SEARCH PROC EEDINGS CARRIED OUT IN THE CASE OF RSL, THAT DETAILED ENQUIRIES RELATING TO THE PAYMENT MADE BY THE ASSESSEE FOR THE ALLEGED LEASE TRANSACTIONS WERE MADE, THAT THE LEASING TRANSACTION WITH RSL G ROUP WAS SHAM, THAT WHEN ASSETS WERE NOT EXISTING THE ASSESSEE COULD NOT BE ALLOWED DEPRECIA TION, THAT THE ACTION OF THE AO OF FRAMING THE BLOCK ASSESSMENT U/S. 158 BD WAS JUSTIFIABLE.THUS,T HE FAA UPHELD THE ADDITION MADE BY THE AO. 4. DURING THE COURSE OF HEARING BEFORE US,THE AUTHORIS ED REPRESENTATIVE (AR) ARGUED THAT THE AO HAD NOT BROUGHT ON RECORD ANY SATISFACTION NOTE REC ORDED BY THE AO CONDUCTING THE SEARCH AT THE PREMISES OF RSL I.E. THE AO WHO HAD ASSESSED THE RS L GROUP AT KANPUR, THAT RECORDING OF SATISFACTION BY THE AO HAVING JURISDICTION OVER THE FIRST PERSON WAS SINE QUA NON FOR CONDUCTING ASSESSMENT ON OTHER PERSON U/S.158 BD OF THE ACT, T HAT IF NO SUCH SATISFACTION NOTE WAS RECORDED THE PROCEEDINGS UNDERTAKEN IN RESPECT OF SUCH OTHER PERSON WERE VOID AND WERE LIABLE TO BE QUASHED. HE REFERRED TO THE CASES OF CALCUTTA KNITW EARS (362 ITR 673), MANISH MAHESHWARI(289 ITR 341)AND CIRCULAR NUMBER 24/2015[F.NO. 279/ MISC /140/2015/ITJ-DATED 31/12/2015). HE ALSO REFERRED TO THE LETTER DATED 6/06/2016 ADDRESS TO THE ACIT, LARGE TAXPAYER UNIT-2 I.E. AO WHEREIN IT HAD REQUESTED HIM TO PROVIDE HIM A COPY OF THE SATISFACTION NOTE. IT WAS ALSO MENTIONED IN THE NOTES THAT THE AO HAD NOT SUPPLIED A COPY OF THE SATISFACTION NOTE TO THE TRIBUNAL. 4.1. ON 09/06/2016 THE DR WAS DIRECTED TO PRODUCE THE SA TISFACTION NOTE RECORDED BY THE AO OF KANPUR SO THAT THE ISSUE OF JURISDICTION COULD BE D ECIDED. ON 30/06/2016 SATISFACTION NOTE WAS NOT PRODUCED BEFORE US. THE DR REQUESTED FOR SOME M ORE TIME TO PRODUCE THE SATISFACTION NOTE. THEREFORE LAST CHANCE WAS GIVEN TO THE DEPARTMENT A ND MATTER WAS ADJOURNED TO 29/07/2016. IT(SS)A-237/M/05-(BP:89-90 TO 98-99) TATA MOTORS 4 TODAY, AN APPLICATION WAS MOVED BY THE DEPARTMENTAL AUTHORITIES FOR ADJOURNING THE CASE STATING THAT THE DEALING DR WAS ON LEAVE. WE ARE UNABLE TO UNDERSTAND THE JUSTIFICATION FOR SEEKING THE ADJOURNMENT.WE HAD NOT DIRECTED SPECIFIC PERSON TO BE PRESENT WHAT WAS REQUIRED WAS TO SUBMIT THE SATISFACTION NOTE. THIS JOB COULD HAVE BEEN DON E BY ANY OF THE OFFICERS.BUT, THE AUTHORITIES DECIDED NOT TO PRODUCE THE SATISFACTION NOTE. IN TH E CIRCUMSTANCES WE ARE COMPELLED TO BELIEVE THAT NO SATISFACTION NOTE EXISTED. WE FIND THAT IN THE CIRCULAR NUMBER 24/2015 (SUPRA) THE CENTRAL BOARD OF DIRECT TAXES HAS MENTIONED THAT FILING OF APPEALS ON THE ISSUE OF RE CORDING OF SATISFACTION NOTE SHOULD ALSO BE DECIDED IN THE LIGHT OF THE ABOVE JUDGMENT. ACCORDI NGLY,THE BOARD HAD DIRECTED THE OFFICERS THAT THE PENDING LITIGATION WITH REGARD TO REGARDING OF SATISFACTION NOTE U/S. 158 BD/153C SHOULD BE WITHDRAWN/NOT PRESSED IF IT DID NOT MEET THE GUIDEL INES LAID DOWN BY THE APEX COURT. IN THE CIRCULAR THE CASE OF CALCUTTA KNITWEARS (SUPRA) WAS DISCUSSED.WE FIND THAT THE HONBLE SUPREME COURT HAD DELIBERATED UPON THE ISSUE OF RECORDING O F SATISFACTION NOTE IN BLOCK ASSESSMENT AS UNDER: THE OPENING WORDS OF SECTION 158BD OF THE INCOME-T AX ACT, 1961, ARE THAT THE ASSESSING OFFICER MUST B E SATISFIED THAT UNDISCLOSED INCOME BELONGS TO ANY PERSON OTHER THAN THE PERSON WITH RESPECT TO WHOM A SEARCH WAS MADE UNDER SECTION 132 OF THE ACT OR A R EQUISITION OF BOOKS WAS MADE UNDER SECTION 132A OF THE ACT AND THEREAFTER, TRANSMIT THE RECORDS FOR AS SESSMENT OF SUCH OTHER PERSON. BEFORE INITIATING PROCEEDINGS UNDER SECTION 158BD OF THE ACT, THE ASS ESSING OFFICER WHO HAS INITIATED PROCEEDINGS FOR COMPLETION OF ASSESSMENTS UNDER SECTION 158BC OF TH E ACT SHOULD BE SATISFIED THAT THERE IS AN UNDISCLO SED INCOME WHICH HAS BEEN TRACED OUT WHEN A SEARCH WAS CARRIED OUT IN RESPECT OF A PERSON UNDER SECTION 13 2 OR BOOKS OF ACCOUNT WERE REQUISITIONED UNDER SECTIO N 132A OF THE ACT. THIS IS IN CONTRAST TO THE PROVI SIONS OF SECTION 148 OF THE ACT WHERE RECORDING OF REASON S IN WRITING IS A SINE QUA NON. UNDER SECTION 158BD , THE EXISTENCE OF COGENT AND DEMONSTRATIVE MATERIAL IS G ERMANE TO THE ASSESSING OFFICERS SATISFACTION IN CONCLUDING THAT THE SEIZED DOCUMENTS BELONG TO A PE RSON OTHER THAN THE PERSON AGAINST WHOM SEARCH WAS CONDUCTED AND IS NECESSARY FOR INITIATION OF ACTION UNDER SECTION 158BD . THE SATISFACTION NOTE COULD BE PREPARED BY THE ASSE SSING OFFICER EITHER AT THE TIME OF INITIATING PROC EEDINGS FOR COMPLETION OF ASSESSMENT OF A PERSON AGAINST WH OM SEARCH WAS CONDUCTED UNDER SECTION 158BC OF THE ACT OR DURING THE STAGE OF THE ASSESSMENT PROCEEDIN GS. IT DOES NOT MEAN THAT AFTER COMPLETION OF THE ASSESSMENT, THE ASSESSING OFFICER CANNOT PREPARE TH E SATISFACTION NOTE TO THE EFFECT THAT THERE EXISTS INCOME BELONGING TO ANY PERSON OTHER THAN THE PERSON IN RE SPECT OF WHOM SEARCH WAS CONDUCTED UNDER SECTION 13 2 OR REQUISITION OF BOOKS OF ACCOUNT WAS MADE UNDER S ECTION 132A OF THE ACT. THE LANGUAGE OF THE PROVISI ON IS CLEAR AND UNAMBIGUOUS. THE LEGISLATURE HAS NOT I MPOSED ANY EMBARGO ON THE ASSESSING OFFICER IN RESPECT OF THE STAGE OF PROCEEDINGS DURING WHICH TH E SATISFACTION IS TO BE REACHED AND RECORDED IN RES PECT OF THE PERSON OTHER THAN THE PERSON AGAINST WHOM SE ARCH WAS CONDUCTED. FOR THE PURPOSE OF SECTION 158BD OF THE ACT, A SATI SFACTION NOTE IS A SINE QUA NON AND MUST BE PREPARE D BY THE ASSESSING OFFICER BEFORE HE TRANSMITS THE RECOR DS TO THE OTHER ASSESSING OFFICER WHO HAS JURISDICT ION OVER SUCH OTHER PERSON. THE SATISFACTION NOTE COULD BE PREPARED AT EITHER OF THE FOLLOWING STAGES : (A ) AT THE TIME OF OR ALONG WITH THE INITIATION OF PROCEEDINGS AGAINST THE PERSON AGAINST WHOM SEARCH WAS CONDUCT ED UNDER SECTION 158BC OF THE ACT ; (B) ALONG WITH THE ASSESSMENT PROCEEDINGS UNDER SECTION 158BC OF THE ACT ; AND (C) IMMEDIATELY AFTER THE ASSESSMENT PROCEEDI NGS ARE COMPLETED UNDER SECTION 158BC OF THE ACT OF THE PERSON AGAINST WHOM SEARCH WAS CONDUCTED. TO SA Y THAT SINCE THE SATISFACTION NOTE WAS PREPARED AFT ER THE PROCEEDINGS WERE COMPLETED BY THE ASSESSING OFF ICER UNDER SECTION 158BC OF THE ACT WHICH IS CONTRA RY TO THE PROVISIONS OF SECTION 158BD READ WITH SECTIO N 158BE(2)(B) WOULD BE CONTRARY TO THE PLAIN AND SIMPLE LANGUAGE EMPLOYED BY THE LEGISLATURE UNDER S ECTION 158BD OF THE ACT WHICH CLEARLY PROVIDES IT(SS)A-237/M/05-(BP:89-90 TO 98-99) TATA MOTORS 5 ADEQUATE FLEXIBILITY TO THE ASSESSING OFFICER FOR R ECORDING THE SATISFACTION AFTER THE COMPLETION OF PROCEEDINGS IN RESPECT OF THE PERSON AGAINST WHOM S EARCH WAS CONDUCTED UNDER SECTION 158BC . SECTION 158BE(2)(B) ONLY PROVIDES FOR THE PERIOD OF LIMITATION FOR COMPLETION OF BLOCK ASSESSMENT UNDE R SECTION 158BD IN THE CASE OF A PERSON OTHER THAN TH E PERSON AGAINST WHOM SEARCH WAS CONDUCTED AS TWO YEARS FROM THE END OF THE MONTH IN WHICH THE NOTICE UNDER THE CHAPTER WAS SERVED ON SUCH OTHER PERSON IN RESPECT OF SEARCH CARRIED OUT AFTER JANUARY 1, 1997 . THE SECTION NEITHER PROVIDES FOR NOR IMPOSES ANY RESTRICTIONS OR CONDITIONS ON THE PERIOD OF LIMITAT ION FOR PREPARATION THE SATISFACTION NOTE UNDER SEC TION 158BD AND CONSEQUENT ISSUANCE OF NOTICE TO THE OTHE R PERSON. TO READ THE PLAIN LANGUAGE OF SECTION 158BE(2)(B) SUCH AS TO EXTEND THE PERIOD OF LIMITAT ION TO RECORDING OF SATISFACTION WOULD RUN COUNTER TO THE AVOWED OBJECT OF INTRODUCTION OF CHAPTER TO PROVIDE FOR COST-EFFECTIVE, EFFICIENT AND EXPEDITIOUS COMP LETION OF SEARCH ASSESSMENTS AND AVOIDING OR REDUCING LONG DRAWN PROCEEDINGS. AS STATED EARLIER,THE DEPARTMENTAL AUTHORITIES DID NOT PRODUCE THE SATISFACTION NOTE IN SPITE OF THE FACT THAT REASONABLE OPPORTUNITIES WERE GIVEN TO TH EM FOR PRODUCING THE RECORDS.THEREFORE, FOLLOWING THE JUDGMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CALCUTTA KNITWEARS (SUPRA), WE HOLD THAT THE ORDER PASSED BY THE AO WAS INVALID AND LIABLE TO QUASHED. REVERSING THE ORDER OF THE FAA, WE DECIDE EFFECTIVE GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. AS A RESULT, APPEAL FILED BY THE ASSESSEE STANDS ALLOWED. . ORDER PRONOUNCED IN THE OPEN COURT ON 29 TH , JULY,2016. 29, , 2016 SD/- SD/- ( / PAWANSINGH ) ( / RAJENDRA ) /JUDICIAL MEMBER /ACCOUNTANT MEMBER MUMBAI; DATED : 29.7.016. JV.SR.PS. / COPY OF THE ORDER FORWARDED TO : 1. APPELLANT / 2. RESPONDENT / 3. THE CONCERNED CIT(A)/ , 4. THE CONCERNED CIT / 5. DR C BENCH, ITAT, MUMBAI / , , . . . 6. GUARD FILE/ //TRUE COPY// / BY ORDER, / DY./ASST. REGISTRAR , /ITAT, MUMBAI.