2019 (1) TMI 38 - HC - Income Tax

Assessment and Depreciation Rules Upheld in Income Tax Act Case

The Pr. Commissioner of Income Tax-2 Versus M/s. HDFC Bank Ltd.,

The Tribunal and High Court upheld the Assessee's interpretation under Chapter XIV-B of the Income Tax Act, 1961 for block assessment in search cases, ... Proceedings u/s. 158BD initiated in order to disallow depreciation on assets leased to REPL - search conducted u/s 132 - difference between the regular assessment and the block assessment - Held that:- Once the Assessing Officer (or the searched person) was satisfied that any undisclosed income belonged to the Assessee, as in the present case, he would hand over the books of account, other documents or assets seized or requisitioned to the Assessing Officer of the present assessee who would than proceed under Section 158BC of the Act. Accordingly, even in case of the person other than searched person, upon finding of any income belonging to the person during search, the block assessment procedure had to be undertaken. As decided in COMMISSIONER OF INCOME-TAX VERSUS DR. M. KE MEMON [2000 (3) TMI 19 - BOMBAY HIGH COURT] regular assessment is to ensure that the assessee had not understated the income or has not computed excessive loss or has not underpaid the tax in any manner whereas what is assessed under Chapter XIVB is only the undisclosed income for the block period and not the income or loss of the previous year which is only done in the normal regular assessment under section 143(3). Tribunal was right in holding that proceedings u/s. 158BD ought to have been initiated in order to disallow depreciation on assets leased to REPL - decided against revenue Allowance of broken period interest - Held that:- Question (b) is covered by the Judgment of this Court in the case of CIT v/s. HDFC Bank Ltd. [2014 (8) TMI 119 - BOMBAY HIGH COURT]. Since there is no dispute with respect to this, we do not find it necessary to give detail background of the issue and the decision of the Court in case of this very Assessee. This question is, therefore, not entertained Appeal admitted for consideration of the question (c)- “(c) Whether on the facts and circumstances of the case and in law, the Tribunal was right in holding that depreciation on the sale and lease back transaction of the assets to AEL should be allowed u/s.32 of the Income Tax Act,1961?” Issues involved:1. Interpretation of provisions under Chapter XIV-B of the Income Tax Act, 1961 regarding block assessment in search cases.2. Disallowance of depreciation on assets leased to REPL.3. Allowance of broken period interest to the respondent.4. Allowance of depreciation on the sale and lease back transaction of assets to AEL.Analysis:1. The first issue pertains to the interpretation of provisions under Chapter XIV-B of the Income Tax Act, 1961 regarding block assessment in search cases. The Tribunal accepted the contention of the Assessee that any additions or disallowances based on search material should be done in accordance with Section 158BD of the Act. The High Court referred to various decisions, including the case of Kapil Dev, to support this interpretation. Chapter XIV-B provides a special procedure for the assessment of search cases, focusing on undisclosed income for the block period, distinct from regular assessments under Section 143(3) of the Act. The block assessment under Chapter XIV-B aims to assess only undisclosed income, emphasizing the difference from regular assessments. The Tribunal's decision aligns with this legal framework, and the High Court upheld this interpretation.2. The second issue involves the disallowance of depreciation on assets leased to REPL. The Assessing Officer disallowed the Assessee's claim of depreciation on windmills based on search material. The Assessee argued that such disallowance should have been initiated under Section 158BD for block assessment. The Tribunal agreed with the Assessee's argument, emphasizing the specific procedure outlined in Chapter XIV-B for cases involving undisclosed income. The High Court upheld the Tribunal's decision, highlighting the importance of following the prescribed procedure for assessing undisclosed income in search cases.3. The third issue concerns the allowance of broken period interest to the respondent. This issue was addressed in the Income Tax Appeals 601 of 2016 and 534 of 2016. The Court referred to its previous judgment in the case of CIT v/s. HDFC Bank Ltd., where this matter was already settled. As there was no dispute regarding this issue, the Court did not delve into it further, leading to the dismissal of the related Income Tax Appeal.4. The final issue revolves around the allowance of depreciation on the sale and lease back transaction of assets to AEL. This question was admitted for consideration in Income Tax Appeals No. 601 of 2016 and 534 of 2016. The Court scheduled this issue to be heard along with other connected Appeals after the Christmas vacation, providing an opportunity for both sides to apply for early hearing. The detailed analysis of this issue is pending until the Court deliberates on it post the vacation period.