PENTAFOUR PRODUCTS LIMITED, CHENNAI V. DCIT, CENTRAL CIRCLE-III(4), CHENNAI

ITSSA 70/CHNY/2004

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3344 (ITAT-CHENNAI)
• Duration Of Justice: 18 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 02-08-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: B
• Next Hearing Date: 21-06-2022
• Assessment Year: misc
• Appeal Filed On: 14-06-2004
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Retrospective amendment; Wrong claim; Block assessment; Documents seized; Unabsorbed depreciation; Set aside; Capital Gains; FORM 2B; CHAPTER XIVB; CHAPTER IV
• Section: 32; 147; 145; 148; 132; 144; 69C; 43B; 139; 69B; 158BC; 158B(b)

Judgement Text

आयकर अपीलीय अिधकरण, ’बी’ Ɋायपीठ, चेɄई IN THE INCOME-TAX APPELLATE TRIBUNAL ‘B’ BENCH, CHENNAI ŵी वी दुगाŊ राव Ɋाियक सद˟ एवं ŵी जी. मंजुनाथा, लेखा सद˟ के समƗ Before Shri V. Durga Rao, Judicial Member & Shri G. Manjunatha, Accountant Member आयकर अपील सं./I.T(SS).A. No. 70/Chny/2004 Block Assessment Period:1989-90 to 1999-2000 M/s. Pentafour Products Limited, No. 332/2, Arcot Road, Kodambakkam, Chennai 600 024. [PAN:AAADP1269K] Vs. The Deputy Commissioner of Income Tax, Central Circle III (4), Chennai 600 034. (अपीलाथŎ/Appellant) (ŮȑथŎ/Respondent) अपीलाथŎ की ओर से / Appellant by : Shri S. Sridhar, Advocate ŮȑथŎ की ओर से/Respondent by : Shri Guru Bashyam, CIT सुनवाई की तारीख/ Date of hearing : 22.06.2022 घोषणा की तारीख /Date of Pronouncement : 03.08.2022 आदेश /O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: This appeal filed by the assessee is directed against the order of the ld. Commissioner of Income Tax (Appeals), Central II, Chennai, dated 20.06.2003 relevant to the block assessment period from 1989-90 to 1999-2000. This appeal is emanating by the order passed by the Hon’ble Madras High Court in T.C.A. No. 1108 of 2009 and TCA No. 284 of 2010 dated 07.03.2022. The directions of the Hon’ble Jurisdictional High Court are reproduced as under: “10. During the course of hearing, the learned counsel for the assessee submitted that by the Finance Act, 2002, amendments have been made to Section 158BB of the Act with effect from 01.07.1995. As per the amendment, I.T.(SS) A. No.70/Chny/2004 2 the undisclosed income for block period shall be the aggregate of the total income of the previous years falling within the block period "in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with the Assessing Officer and relatable to such evidence". However, the applicability of the amendments brought to the Finance Act, 2002 with effect from 01.07.1995 to the case of the assessee has not been considered by the Tribunal while passing the impugned order dated 05.06.2009. It is further submitted that the Finance Act, 2002 has made a clarificatory amendment to include a reference to Sec. 145 so as to make the provisions of that section applicable in the block assessment. However, the Tribunal, while rejecting the claim of the additions made by the assessing officer, has failed to reckon with the amendment made by the Finance Act, 2002 to the provisions of Section 158B(D) with retrospective effect from 01.07.1995 to redefine the term 'undisclosed income' to include any expenses, deduction or allowance claimed under the Act. Since the amendment is of the year 2002, they have not been taken into consideration and it needs examination. Therefore, it is prayed by the learned counsel for the assessee that the matter may be remitted back to the Tribunal for considering the claim of the assessee for deleting the various additions made in the block assessment made under Section 158BC of the Income Tax Act related to regular assessments, without appreciating the amendments made by the Finance Act, 2002 with retrospective effect from 01.07.1995 to Sections 158B(b), 158BB(i) and 158BB(1)(c). 11. The learned counsel for the revenue also does not seriously object to the said prayer of the counsel for the assessee to remand the case to the Tribunal for fresh consideration taking note of the amendments brought to the Finance Act, 2002 with effect from 01.07.1995. 12. Considering the facts and circumstances of the case and having regard to the submissions made by the learned counsel on either side, we are inclined to remit the matter back to the Tribunal leaving the questions of law raised in these appeals open to be decided in appropriate cases. 13. Accordingly, the impugned order dated 05.06.2009 passed by the Tribunal is set aside and the matter is remanded to the Tribunal to consider the effect of the amendments brought to the Finance Act, 2002 with effect from 01.07.1995 to the case of the assessee on merits and in accordance with law. Such an exercise be completed within a period of six months from the date of receipt of a copy of this order.” 2. Facts, are in brief, that the assessee is a limited company engaged in the business of manufacture of electrical/electronic and I.T.(SS) A. No.70/Chny/2004 3 automobile related products. A search and seizure operation under section132 of the Income Tax Act, 1961 [“Act” in short] was initiated in the business premises of the assessee on 11.01.1999 and completed on 14.05.1999. The books of accounts and other documents seized during the search operation revealed that the assessee never disclosed the income arising out of the following: a) Depreciation claim on non-existing assets b) Expenses debited to the profit and loss account but not paid before the due date. The assessee filed its block return in Form 2B in response to the notice issued under section 158BC of the Act and declared a total undisclosed income as NIL. The Assessing Officer completed the block assessment on 30.05.2001 by determining a total undisclosed income for the block period at ₹.33,75,28,601/-. The Assessing Officer made the following additions while computing the block assessment which were challenged by the assessee. The details of which are as under: 1. Excess claim of depreciation ₹. 24,93,46,724/- 2. Difference in book profit ₹. 97334/- 3. Commission debited to profit & loss account but not paid ₹. 34,46,125/- 4. Interest disallowance u/s. 43B ₹. 8,42,38,418/- 5. Capital gains not admitted ₹. 4,00,000/- I.T.(SS) A. No.70/Chny/2004 4 On appeal, the ld. CIT(A) has deleted the addition towards commission debited to profit and loss account but not paid but confirmed the other additions/disallowances made by the Assessing Officer. 3. Against the order passed by the ld. CIT(A), the assessee carried the matter in appeal before the Tribunal and the ITAT in I.T.(SS)A. No. 70/Mds/2004 by order dated 05.06.2009, confirmed the addition made towards excess claim of depreciation on non-existing assets and deleted remaining additions. 4. Against the order passed by the ITAT, the assessee carried the matter in appeal before the Hon’ble High Court and the Hon’ble High Court has directed the ITAT to consider the effect of the amendments brought to the Finance Act, 2002 with effect from 01.07.1995 to the case of the assessee on merits and in accordance with law. 5. The ld. Counsel for the assessee has submitted that the addition made by the Assessing Officer and confirmed by the ld. CIT(A) in respect of excess depreciation claimed by the assessee is without any reference to seized material and submitted that no addition can be made without seized material. He further submitted that the report submitted by the IFCI cannot be considered as seized material. It was also submitted that the I.T.(SS) A. No.70/Chny/2004 5 amendment provided under section 158BB by Finance Act, 2002 w.e.f. 01.07.1995 cannot be applied to assessee’s case. 6. On the other hand, the DR has submitted that the addition made by the Assessing Officer was based on bogus depreciation claim made by the assessee and also submitted that the Assessing Officer has rightly made the addition, which was confirmed by the ld. CIT(A). So far as seized materials are concerned, the ld. DR has submitted that the Assessing Officer as well as ld. CIT(A), based on the IFCI report, the addition was made, the IFCI report itself is a seized material. Therefore, the ld. DR has submitted that the addition made by the Assessing Officer shall be sustained. 7. So far as interest disallowance under section 43B of the Act is concerned, the ld. Counsel for the assessee has strongly supported the order passed by the ITAT and submitted that the claim of the assessee may be a wrong claim, but, not a false claim. Therefore, the amendment to section 43B of the Act is not applicable. On the other hand, the ld. DR has submitted that the claim made by the assessee under section 43B of the Act is a false claim and it covers provisions of section 43B of the Act. Therefore, the order passed by the ld. CIT(A) may be upheld. I.T.(SS) A. No.70/Chny/2004 6 8. We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. In this case, there were two issues involved, viz., (i) depreciation claim on non-existing assets and (ii) expenses debited to the profit and loss account but not paid before the due date. 8.1 In so far as depreciation on non-existing asset is concerned, the ld. Counsel for the assessee has raised the issue before the Hon’ble Madras High Court that the applicability of the amendments brought to the Finance Act, 2002 with effect from 01.07.1995 to the case of the assessee has not been considered by the Tribunal while passing the impugned order dated 05.06.2009 in IT(SS)A No. 70/Mds/2004. The amendment brought by Finance Act, 2002 has substituted clause (c) to section 158BB(1) of the Act with retrospective effect from 01.07.1995 and therefore, requested the Hon’ble High Court to remit the matter back to the ITAT for fresh consideration. The ld. Counsel for the Revenue has not seriously object. Therefore, the Hon’ble Madras High Court has remitted the matter back to the file of the ITAT to consider the amendment made by the Finance Act, 2002 with retrospective effect from 01.07.1995 to section 158BB(1)(c) of the Act to redefine the term ‘undisclosed income’ to include the income which has been suppressed by making false claim I.T.(SS) A. No.70/Chny/2004 7 of expenses or deduction which have been discovered as a result of search or requisition. The relevant provisions of section 158BB of the Act are reproduced as under: “Computation of undisclosed income of the block period 158BB.(1) The undisclosed income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of Chapter IV on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with Assessing Officer and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years, determined,- (a) where assessments under section 143 or section 144 or section 147 have been concluded prior to the date of commencement of the search or the date of date of requisition, on the basis of such assessments; (b) where returns of income have been filed under section 139 or in response to a notice issued under sub-section (1) of section 142) or section 148 but assessments have not been made till the date of search or requisition, on the basis of the income disclosed in such returns; (c) where the due date for filing a return of income has expired but no return of income has been filed, - (A) on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition where such entries result in computation of loss for any previous year falling in the block period; or (B) on the basis of entries as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition where such income does not exceed the maximum amount not chargeable to tax for any previous year falling in the block period; I.T.(SS) A. No.70/Chny/2004 8 (ca) where the due date for filing a return of income has expired, but no return of income has been filed, as nil, in cases not falling under clause (c); (d) where the previous year has not ended or the date of filing the return of income under sub- section (1) of section 139 has not expired, on the basis of entries relating to such income or transactions as recorded in the books of account and other documents maintained in the normal course on or before the date of the search or requisition relating to such previous years; (e) where any order of settlement has been made under sub- section (4) of section 245D, on the basis of such order; (f) where an assessment of undisclosed income had been made earlier under clause (c) of section 158BC, on the basis of such assessment. Explanation.- For the purposes of determination of undisclosed income,- (a) the total income or loss of each previous year shall, for the purpose of aggregation, be taken as the total income or loss computed in accordance with the provisions of Chapter IV without giving effect to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub- section (2) of section 32; Provided that in computing deductions under Chapter VI-A for the purposes of the said aggregation, effect shall be given to set off of brought forward losses under Chapter VI or unabsorbed depreciation under sub-section (2) of section 32; (b) of a firm, returned income and total income assessed for each of the previous years falling within the block period shall be the income determined before allowing deduction of salary, interest, commission, bonus or remuneration by whatever name called to any partner not being a working partner; (c) assessment under section 143 includes determination of income under sub- section (1) or subsection (1B) of section 143. (2) In computing the undisclosed income of the block period, the provisions of sections 68, 69, 69A, 69B and 69C shall, so far as may be, apply and references to" financial year" in those sections shall be construed as references to the relevant previous year falling in the block period including the previous year ending with the date of search or of the requisition. I.T.(SS) A. No.70/Chny/2004 9 (3) The burden of proving to the satisfaction of the Assessing Officer that any undisclosed income had already been disclosed in any return of income filed by the assessee before the commencement of search or of the requisition, as the case may be, shall be on the assessee. (4) For the purpose of assessment under this Chapter, losses brought forward from the previous year under Chapter VI or unabsorbed depreciation under sub- section (2) of section 32 shall not be set off against the undisclosed income determined in the block assessment tinder this Chapter, but may be carried forward for being set off in the regular assessments.” 8.2 The provisions of section 158B(b) of the Act now reads thus “Undisclosed income” includes any money, bullion, jewellery or other valuable article or thing or any income based on any entry in the books of account or other documents or transactions, where such money, bullion, jewellery, valuable article, thing, entry in the books of account or other document or transaction represents wholly or partly income or property which has not been or would not have been disclosed for the purposes of this Act or any expense, deduction or allowance claimed under this Act which is found to be false”. As per the above definition, the income based on entries in the books of accounts or other documents which represent a false claim of any expense, deduction or allowance under the Income Tax Act has been included in the definition of undisclosed income with retrospective effect from 01.07.1995 by the Finance Act, 2002. Similarly, the provisions of section 158BB(i) of the Act has been amended with the retrospective effect from 01.07.1994, which now reads: “The undisclosed I.T.(SS) A. No.70/Chny/2004 10 income of the block period shall be the aggregate of the total income of the previous years falling within the block period computed in accordance with the provisions of this Act, on the basis of evidence found as a result of search or requisition of books of account or other documents and such other materials or information as are available with Assessing Officer and relatable to such evidence, as reduced by the aggregate of the total income, or as the case may be, as increased by the aggregate of the losses of such previous years....” 8.3 Further, the provisions of section 158BC of the Act lay down the procedure for block assessment. Clause (b) of section 158BC provides that after issuing a notice calling for a return for the block period, the Assessing Officer shall proceed to determine the undisclosed income, and the provisions of section 142, 143 and 144 relating to issue of notices, calling for certain information and making best judgement assessment shall apply to the extent possible. The clause does not refer to section 145, which requires that income from business or profession and income from other sources is to be computed in accordance with the method of accounting regularly followed by the assessee. This gave rise to disputes as to whether provisions of section 145 are applicable in block assessments. The Finance Act, 2002 has made a clarificatory I.T.(SS) A. No.70/Chny/2004 11 amendment to the said clause to include a reference therein to section 145, so as to make the provisions of that section applicable in block assessments. 8.4 The above two amendments made with retrospective effect from 01.07.1995 and accordingly applies to block assessments in cases of search under section 132 or requisition under section 132A made on or after 01.07.1995. In the present case, the block period relates to 1989-90 to 1999-2000 and in this case, the assessee has claimed depreciation on non-existing assets. Therefore, as per the definitions of undisclosed income provided under section 158BB, any expenses, deduction or allowance claimed under this Act which is found to be false, which has included in the definition of undisclosed income by the amendment by the Finance Act, 2002 w.e.f. 01.07.1995. Therefore, the claim of the assessee is a false claim. Therefore, the same comes under the definition of undisclosed income. 8.5 The ld. Counsel for the assessee has submitted that there is no seized material based on which the addition was made by the Assessing Officer and also submitted that the IFCI information cannot be considered as a seized material. We find that it is a fact that the claim made by the assessee is a false claim and no asset was in existence. The assessee, I.T.(SS) A. No.70/Chny/2004 12 neither before the Assessing Officer nor before the ld. CIT(A) or even before the ITAT in first round of litigation or in the second round of litigation brought on record any material to show that the asset on which the depreciation was claimed is in existence. 8.6 In respect of claim of depreciation on non-existing assets, in the assessment order, the Assessing Officer has observed as under: “4.2 When an inspection team of one of the financial institutions namely IFCI visited the premises, it found that no asset existed as reflected in the books. The Chartered Accountant also appears to have issued certificate for acquisition of assets based on mere entries in the books without any physical verification thereof. This very well suited the assessee to claim higher depreciation on these assets under the IT Act which enabled it to reduce its tax liability considerably on its books profits which was admittedly inflated by booking certain unreal transactions of sales and purchases in order to paint a rosy picture of the financial position of the company before the public as well as to the financial institutions. 4.3 Notwithstanding the fact, as claimed now, that there were no real profits as reflected in the books but only loss as per the revised P&L A/c filed in the course of these proceedings, the one fact which has emerged out of the search is that the assessee had claimed higher depreciation than what was admissible and to the extent of such wrong claim, income has not been disclosed in the returns filed for purposes of the Act. 4.4 The Assessing Officers too, while assessing the income for one or more of the assessment years relating to the previous years falling within the block period, could not also look into the depreciation claim with an eye of suspicion as the assessee barely furnished any details for purchase of the assets recorded in the books so that the Assessing Officer may not cause any inspection of the assets to accept its claim. Thus there has been deliberate attempt to conceal income or in other words the income has not been disclosed properly for the purposes of the Act. Therefore to the extent of incorrect claim of depreciation far more than that truly admissible under the Act, irrespective of the fact whether profit or loss accrued to the assessee for these years from real business transaction, there has been undisclosed income assessable under this block assessment. I.T.(SS) A. No.70/Chny/2004 13 4.5 When this fact was revealed by looking into the various seized records relating to the borrowals from financial institutions, the assessee itself in its computation of total income filed with the block return admitted lesser depreciation admissible vide Row 9 of para 2.4 of under the Act than what was claimed vide Row 9 of para 2.5 in the statement of income filed along with the return of income assessable under normal provisions of the Act. Inspection of the assessee's premises also reveal that there are no other assets than those in respect of which depreciation has been claimed in the statements of accounts filed for each of the previous years falling within the block period. 4.6 It is manifestly clear that the excess claim of deduction towards depreciation under the Act when disallowed increases the income admitted earlier in the returns filed and consequently becomes undisclosed income assessable under Chapter XIVB of the Act.” 8.7 The Assessing Officer, based on the report of the IFCI, which is authenticated report, came to a conclusion that the claim of the assessee is a false claim. Apart from that once the assessee made a claim; it is burden on the assessee to prove that such an asset is in existence. In this case, the assessee failed to prove the existence of the asset before all the authorities including before the ITAT. Therefore, the argument of the ld. Counsel for the assessee is rejected. 8.8 In our opinion, the report of the IFCI is a seized material and the addition made by the Assessing Officer based on the IFCI report is in accordance with law. The assessee has claimed depreciation on non- existing assets, the same is a false expenditure/ claim of the assessee which could not be ordinarily detected in the course of regular assessment proceedings. Therefore, in our view the undisclosed income I.T.(SS) A. No.70/Chny/2004 14 computed in respect of depreciation on non-existing assets shall be undisclosed income of the assessee and can be assessed under the block assessment. Thus, we find no reason to interfere with the order passed by the ld. CIT(A) and accordingly, the ground raised by the assessee is dismissed. 8.9 So far as the issue of expenses debited to profit and loss account but not paid before the due date is concerned, the ld. Counsel for the assessee has submitted that the assessee has disclosed all the details before the Assessing Officer and therefore, it cannot be called as false claim. The ld. DR has strongly supported the order of the ld. CIT(A). The assessee has debited the expenditure to profit and loss account and the same were not paid till due date of filing of the return of income under section 139 of the Act. Therefore, the same hit by the provisions of section 43B of the Act, but the same cannot be treated as false for the reason that the expenditure has already become due and recorded in the books of account as per the Accounting Standard as the assessee is following Mercantile method of accounting. As such, the expenditure which became due and were recorded in the books of accounts which may not be allowable as per the provisions of the Act and the same cannot be treated as undisclosed income of the assessee under the block I.T.(SS) A. No.70/Chny/2004 15 assessment. 9. In the result, the appeal filed by the assessee is partly allowed. Order pronounced on the 03 rd August, 2022 in Chennai. Sd/- Sd/- (G. MANJUNATHA) ACCOUNTANT MEMBER (V. DURGA RAO) JUDICIAL MEMBER Chennai, Dated, 03.08.2022 Vm/- आदेश की Ůितिलिप अŤेिषत/Copy to: 1. अपीलाथŎ/Appellant, 2.ŮȑथŎ/ Respondent, 3. आयकर आयुƅ (अपील)/CIT(A), 4. आयकर आयुƅ/CIT, 5. िवभागीय Ůितिनिध/DR & 6. गाडŊ फाईल/GF.